Grayscale Sues the U.S. SEC After Facing Rejection for Its Spot Bitcoin ETF

On Tuesday, June 29, the U.S. Securities and Exchange Commission (SEC) rejected the proposal from Grayscale for converting its Bitcoin Trust (GBTC) to a spot Bitcoin ETF. The SEC’s rejections comes on the ground of Grayscale failing to address concerns over market manipulation.

This puts an end to Grayscale’s eight-month long campaign of converting its Bitcoin investment vehicle to a physically-backed Bitcoin ETF.

However, the world’s largest asset manage has decided to grad the SEC to the court over this matter. Soon after the news of the SEC rejection came in, Grayscale announced that it is filing a lawsuit against the U.S. securities regulator. Challenging SEC’s decision, Grayscale has submitted a petition for review with the United States Court of Appeals for the District of Columbia Circuit.

Representing Grayscale in this case is Donald B. Verrilli, Jr., Grayscale Senior Legal Strategist and former U.S. Solicitor General. The attorney further lashed out at the U.S. securities regulator stating the “SEC is failing to apply consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934. There is a compelling, common-sense argument here, and we look forward to resolving this matter productively and expeditiously.”

In one of the early letters posted on the Grayscale website, Grayscale Chief Executive Officer Michael Sonnenshein said: From its inception in 2013, GBTC was designed to be an ETF. The SEC continues to prohibit spot-based ETFs from coming to market, so the Grayscale team has been preparing for all possible post-ruling scenarios.”

Back in May during a meeting with the SEC, Grayscale argued that converting its GBTC product to an ETF would unlock $8 billion in value for its investors. However, the SEC has refused to budge. Grayscale said that if the SEC is ok with having a Bitcoin futures ETF, it shouldn’t have any problem with approving a spot Bitcoin ETF as well.

Speaking about the current development, Michael Sonneshein said: Grayscale supports and believes in the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation -- and 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. 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.”

In other news, Michael Taylor announced on Tuesday that his firm MicroStrategy has purchased an additional 480 Bitcoin for a fresh investment of $10 million. As of 6/28/22  @MicroStrategy holds ~129,699 bitcoins acquired for ~$3.98 billion at an average price of ~$30,664 per bitcoin.