Grayscale sues the SEC as its spot bitcoin ETF denied

abdelaziz Fathi

Grayscale, the company running the world’s biggest bitcoin fund, is suing the US Securities and Exchange Commission after the agency rejected a bid to turn its investment vehicle into a fund that trades on major Wall Street exchanges.

Grayscale

This follows the company’s move to bolster its legal team to work on the ETF application. For this purpose, Grayscale hired former United States solicitor general Donald B. Verrilli Jr., who served between 2011-2016, and a team of attorneys at law firm Davis Polk & Wardwell.

The move aims to better make its case for converting the massive Grayscale Bitcoin Trust, which owns bitcoin rather than contracts tied to its future price, into an ETF.

To put matters into perspective, Grayscale CEO Michael Sonnenshein tweeted late Wednesday that Grayscale is taking a legal action, having filed a lawsuit in US Court of Appeals for the D.C. Circuit.  He added that the SEC is failing to apply consistent treatment to similar investment vehicles, and is therefore acting “arbitrarily and capriciously” in violation of the 1934 act.

“We are deeply disappointed by and vehemently disagree with the SEC’s decision to continue to deny spot Bitcoin ETFs from coming to the U.S. market,” said Sonnenshein in a press release.

“Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the U.S. regulatory perimeter. We will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles,” he added.

GBTC shares trade at a discount

Citing concerns over “fraudulent and manipulative acts and practices,” the SEC said in its ruling that the Grayscale spot ETF proposal did not do enough to protect investors.

The firm had reportedly met with the SEC commissioners in May to discuss converting its Bitcoin trust into a spot exchange-traded fund.

Grayscale added that converting its flagship product into an ETF would “protect investors and the public interest, allowing the product to better track net asset value while giving investors the freedom to invest in Bitcoin in a safe and secure manner.”

In October, Grayscale Investments, a subsidiary of Barry Silbert’s Digital Currency Group, said it plans to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF. But the US Securities and Exchange Commission said it needs more time to consider the proposed rule change and any comments received.

In response to the SEC’s procrastination, Grayscale Bitcoin Trust share has widened its discount relative to the underlying cryptocurrency held in the fund. At one point last month, DCG’s flagship GBTC shares traded at a discount of 25% to net asset value (NAV).

The Grayscale Bitcoin Trust (GBTC), which owns 3.5 per cent of the world’s bitcoin, had traded at a substantial premium to NAV for much of its existence. However, it has continuously traded at a discount since the emergence of the first North American bitcoin ETF in Canada.

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