Grayscale to Sue U.S. Securities and Exchange Commission Over Denied Spot BTC EFT
Grayscale Investments has launched a legal challenge against the United States Securities and Exchange Commission (SEC) after being denied its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin (BTC) exchange-traded fund (ETF). On Wednesday, it announced that its senior legal strategist, former U.S. solicitor general Donald B. Verrilli Jr., had filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit.
[Ng, F. BREAKING: Grayscale launches legal challenge to Bitcoin spot ETF rejection. (Accessed June 30, 2022)].
The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin exchange-traded fund. The application was so denied with the SEC citing "concerns about market manipulation, the role of Tether in the broader bitcoin ecosystem and the lack of a surveillance-sharing agreement between a "regulated market of significant size" and a regulated exchange, echoing concerns the regulator has expressed for years in rejecting other spot bitcoin ETF applications" [De, N. Grayscale Sues SEC Over Bitcoin ETF Application Rejection. (Accessed June 30, 2022)].
As noted above, this lawsuit is being headed by Grayscale’s senior legal strategist Donald B. Verrilli Jr., a former U.S. solicitor general, and a team of attorneys at law firm Davis Polk & Wardwell.
Verrilli said 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.'
[Browne, R. Grayscale sues SEC after rejection of bid to turn the largest bitcoin fund into an ETF. (Accessed June 30, 2022)].
"Grayscale Investments, which has $12.92 billion of assets under management in its GBTC, had been waiting on a decision from the SEC to convert its flagship Bitcoin trust into a spot-based ETF since filing its application to the regulator on October 19, 2021... The decision came out a full week before the July 6 deadline and came on the same day as a similar rejection of Bitwise’s Bitcoin exchange-traded product (ETP).
[Ng, supra].
Once the SEC announced the denial decision, Michael Sonnenshein, Grayscale CEO, almost immediately tweeted:
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In a Press Release at approximately 9 PM yesterday (June 29, 2022), Sonnenshein set forth:
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 .... 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.
[Grayscale Investments. Grayscale Investments® Initiates Lawsuit Against the SEC. (Accessed June 30, 2022)].
According to Verrilli, "There is a compelling, common-sense argument here, and we look forward to resolving this matter productively and expeditiously" [Id].
However, despite Verrilli's statement, James Seyffart, an ETF analyst at Bloomberg Intelligence, believes the whole legal process in the case will take between 12 to 18 months before resolution. As well, Seyffart tweeted the following estimated timeline:
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"To date, only a handful of bitcoin futures ETFs have been approved to trade. Spot bitcoin ETFs trade based on the price of bitcoin itself, while futures-based ETFs trade based on the price of CME's bitcoin futures product (which in turn is tied to an index). Bitcoin ETF proponents argue that the futures markets are still based on the underlying spot bitcoin price, while the SEC notes that CME's futures market is regulated by the Commodity Futures Trading Commission (CFTC), a fellow federal agency" [De. supra].
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