SEC Boots Grayscale’s Spot Bitcoin ETF Again, Legal Challenge Filed
Key Insights:
- The US SEC has rejected Grayscale’s proposal to convert its flagship Bitcoin Trust to an ETF.
- Grayscale CEO Michael Sonnenshein noted that the firm is “deeply disappointed” with the regulator’s decision.
- The company has launched a legal challenge against the SEC.
The U.S. Securities and Exchange Commission’s (SEC) long-delayed rejection of bitcoin (BTC) exchange-traded funds (ETFs) comes as no surprise as Chairman Gary Gensler has been fairly clear that he opposes spot BTC ETFs.
The regulator on Wednesday, rejected a spot bitcoin ETF by Grayscale Investments. SEC cited that the proposal did not meet the standard designed to prevent fraud and market manipulation.
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Grayscale had applied to convert its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF. The SEC denial comes as a blow for the broader crypto industry even after proving that the ETF product meets all investor protections.
According to the SEC filing on June 29, the application was rejected “to protect investors and the public interest” as the proposal failed to demonstrate its “design to prevent fraudulent and manipulative acts and practices.”
This decision has arrived a week ahead of the actual deadline – July 6 – to decide whether to reject or approve bitcoin ETFs. The SEC also disapproved Bitwise’s Bitcoin exchange-traded product (ETP).
Graycsale faced repeated rejections from SEC
To date, SEC has given green signal to only a handful of bitcoin futures ETFs to trade. Grayscale filed its initial application in October 2021, just after SEC cleared the way for ProShares bitcoin futures ETF to trade on the New York Stock Exchange (NYSE).
However, the securities regulator delayed the decision to approve or disapprove a bitcoin ETF multiple times. The SEC had also asked for additional information and comments from the public.
In December last year, Grayscale wrote a letter to the SEC stating that the commission could be breaking a law and violating the Administrative Procedure Act (APA) by rejecting a BTC spot ETF.
Grayscale Sues SEC
Michael Sonnenshein, CEO of Grayscale Investments said that the firm is “deeply disappointed” with the regulator’s decision. He also noted that the company “vehemently disagree” with SEC over continuous denial of spot bitcoin ETFs. Sonnenshein said 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.”
Additionally, the company has filed a lawsuit against the SEC. On June 29, the company noted that its Senior Legal Strategist and former U.S. Solicitor General Donald B. Verrilli Jr. has challenged the SEC by filing a petition for review.
We’ve filed a lawsuit against the SEC. $GBTC
— Sonnenshein (@Sonnenshein) June 30, 2022
According to Verrelli, the SEC is “acting arbitrarily and capriciously” in violation of the Administrative Procedure Act and Securities Exchange Act. He said,
“There is a compelling, common-sense argument here, and we look forward to resolving this matter productively and expeditiously.”