The CEO of the investment firm running the world’s biggest bitcoin fund sounded off on comments made by Securities and Exchange Commission chair Gary Gensler about the likely approval path for the first U.S. bitcoin ETF.

Michael Sonnenshein, CEO of Grayscale Investments, warned on Tuesday that the SEC would be making a mistake if it granted approval to an ETF based on bitcoin futures ahead of one tied to the cryptocurrency itself. His firm has been seeking to convert the massive Grayscale Bitcoin Trust, which owns bitcoin rather than contracts tied to its future price, into an ETF.

“It would be short sighted of the SEC to allow a futures-based product into the market before a spot product,” Sonnenshein told CNBC’s “Squawk Box” on Tuesday. “They really should be allowing both products into the market at the same time and let investors choose which way they want.”

Last month, Gensler signaled a preference for reviewing applications from investment firms seeking to launch ETFs tied to bitcoin futures that trade on the Chicago Mercantile Exchange. That’s an alarming development for Grayscale, which has sought to convert its bitcoin trust into an ETF since 2016. The approval of the first bitcoin ETF in the U.S. is viewed as a crypto milestone because it would aid in the adoption of the nascent asset class.

During the “Squawk Box” discussion and in a follow-up phone interview, Sonnenshein warned of potential downsides to the SEC’s position. A futures-based ETF would cost investors more in fees because of the inherent expense of rolling over futures contracts as they expire, Sonnenshein said.

Further, investors who want an investment fund that more closely tracks the price of bitcoin may gravitate toward a futures-based ETF, which could siphon away capital from the flagship Grayscale product, he said. That’s one of the main reasons Grayscale wants to convert its fund, known by its GBTC ticker, to an ETF. As currently constructed, the fund can trade at a discount or premium to bitcoin itself.

“If a futures-based ETF comes to market without the ability for GBTC to convert to an ETF, it has the potential to harm investors who hold tens of billions of dollars’ worth of GBTC today outright, as well as the investors who have exposure to GBTC inside mutual funds, retirement accounts and other places,” Sonnenshein said.

Overall, he viewed the SEC’s stance as bullish for bitcoin because if regulators are comfortable with derivatives tied to the cryptocurrency, it suggests they are comfortable with the underlying asset class.

Grayscale’s bitcoin trust had $32.4 billion in assets under management and holds more than 3% of the available supply of bitcoin, Sonnenshein said.

The SEC didn’t immediately respond to a request for reaction to Sonnenshein’s comments.

This story is developing. Please check back for updates.