Grayscale Investments Sues SEC Over Bitcoin ETF Denial

In response to the U.S. Securities and Exchange Commission’s denial of a request to convert its Bitcoin trust into an exchange-traded fund, Grayscale Investments, the largest manager of digital currency assets globally, has filed a lawsuit against the SEC. 

Michael Sonnenshein, CEO at Grayscale Investments, tweeted on June 29 :

Grayscale Investments Initiates Lawsuit Against the SEC.

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Concerning cryptocurrency asset management and investment, Grayscale Investment is a reputable source. The company offers market analysis and investment exposure to the emerging asset class for digital currencies. 

However, in October 2021, Grayscale submitted a request to the SEC to declare its Grayscale Bitcoin Trust to spot-based bitcoin ETF.

The Securities and Exchange Commission (SEC) has continuously refused to allow a spot bitcoin ETF to be created. This would have allowed regular investors to buy into digital assets in a way that is similar to stocks. This would have been a significant step towards the mainstream adoption of digital assets, but the SEC voted against it.

Unfortunately, the SEC rejected Grayscale’s request to convert a Bitcoin trust earlier on June 29. The regulator turned down the spot bitcoin ETF proposals because of worries about market manipulation. As a result, the eight-month conversion drive by Grayscale has been rejected, which results in legal action.

Grayscale promptly petitioned the U.S. Court of Appeals for the District of Columbia Circuit on June 29 to examine the SEC’s denial and challenge the ruling.

Grayscale Suing SEC

Michael highlighted his concerns and discouragement regarding the SEC:

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.

He believes American investors will strongly express the desire to convert GBTC to a spot Bitcoin ETF during the ETF application review process. It would allow billions of dollars in investor funds to flow while bringing the biggest Bitcoin fund in the world closer to the regulatory boundaries of the United States.

Moreover, in order to support their investors and the fair regulatory treatment of Bitcoin investment vehicles, he claimed that the company would continue to use all of its resources.

Donald B. Verrilli, Jr., Senior Legal Strategist at Grayscale, believes that the SEC is violating the Administrative Procedure Act and Securities Exchange Act of 1934 by operating “arbitrarily and capriciously.” This includes neglecting to treat identical investment vehicles consistently.

He claims that:

There is a compelling, common-sense argument here, and we look forward to resolving this matter productively and expeditiously.

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Besides this, the Wall Street trading firms Jane Street, Virtu Financial (VIRT), and Grayscale signed an agreement on Monday to reduce the discount on their Bitcoin Trust in the wake of a probable ETF conversion.

David LaValle, the global head of ETFs for the company, said that even though the SEC has not yet approved their application, it is a sign that they are ready for when it does.

                       Featured image from Flickr, and chart from Tradingview