Grayscale Fights SEC after $12B Bitcoin ETF Bid Rejection

• Grayscale filed a lawsuit against the SEC on June 29 asking the US court to review the regulator’s decision.
• The SEC cited fraud risks and market manipulation as primary reasons for the decision.

Gary Gensler’s federal agency, the Securities and Exchange Commission (SEC) rejected the digital asset manager’s application to convert its $12 billion Bitcoin spot trust into a Bitcoin exchange-traded fund. Grayscale has called on American-based investors to push for the BTC ETF.

Grayscale is a digitally-native company that provides market insight and cryptocurrency asset management services. A bitcoin exchange-traded fund (ETF) tracks the value of bitcoin. ETFs can be bought, sold, and traded on traditional stock market exchanges instead of cryptocurrency trading platforms. Theoretically, bitcoin is purchased by Grayscale, securitized, and sold or traded on an exchange.

The SEC has insisted that fraud risks and market manipulation are its main concerns, and reasons for turning down the firm’s application. Grayscale argued that the SEC’s logic is contradictory and “unfair”.

We’ve filed the opening brief in our lawsuit against the SEC, challenging their decision to deny our application to convert $GBTC to a spot Bitcoin ETF.

A “brief” thread:

— Grayscale (@Grayscale) October 12, 2022

In response to the turn down by the SEC, Grayscale CEO Michael Sonnenshein filed a lawsuit against the SEC, citing “failing to apply consistent treatment to similar investment vehicles” when it rejected the Grayscale Bitcoin Trust listing application.

Grayscale attempted to convert its grayscale Bitcoin Trsu from an exchange-traded fund (ETF) to being traded on the over-the-counter markets. Its application was denied by the Securities and Exchange Commission, the reason being the proposal failed to display how it was “designed to prevent fraudulent and manipulative acts and practices.”

In part due to perceived litigation risks, GBTC shares have consistently traded below the value of Bitcoin spot price since 2021, with the discount reaching 35%, a new all-time high, at the time of publication.

The Commission Arbitrarily Determined That the Proposed Rule Change Was Not Designed To Prevent Fraud and Manipulation, Even Though the Bitcoin Futures ETPs That the Commission Has Approved Are Exposed to Exactly the Same Risks of Fraud and Manipulation as the Trust’s Proposed Spot Bitcoin ETP.