The SEC rejected Grayscale’s application to convert the Grayscale Bitcoin Trust into an exchange-traded fund earlier on Wednesday.
Grayscale Investments sued the US Securities and Exchange Commission (SEC) just an hour after the regulator rejected an application to convert their flagship Grayscale Bitcoin Trust product into an exchange-traded fund (ETF).
The SEC rejected Grayscale’s application earlier on Wednesday, citing concerns about market manipulation, Tether’s role in the broader bitcoin ecosystem, and the lack of a custodial sharing agreement between a “a market of considerable size” and a regulated exchange, raising concerns the regulator has expressed for years rejecting other spot bitcoin ETF applications.
Grayscale is a subsidiary of parent company CoinDesk Digital Currency Group.
In the filing, Grayscale simply asked the U.S. Court of Appeals for the District of Columbia to review the SEC’s order.
The investment firm announced that it was prepared to sue the SEC in a previously denied case in 2022, saying it would file a proceeding related to the Administrative Procedure Act. To that end, Grayscale tapped former Solicitor General Don Verrilli, who has experience in APA proceedings.
“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. strongly disagree with the SEC’s decision to continue rejecting US Spot Bitcoin ETFs,” Grayscale CEO Michael Sonnenshein said in a statement Wednesday.
Essentially, the company would argue that the SEC must allow the same products as other products to be traded, in this case a bitcoin futures ETF.
Verrilli told reporters in early June that the SEC’s approval of ETF futures shows that the underlying market must be considered reliable.
“This is where common sense really comes in. You have a situation where you have certain types of exchange-traded funds, a fund that focuses on bitcoin futures, and the SEC has approved it. approved of that, the SEC gave it its seal of approval,” he said. “In order to do so, it must determine that this approval must be consistent with securities law, and in particular, that there are insufficient fundamental risks of fraud and manipulation.”
To date, only a handful of bitcoin futures ETFs have been approved for trading. A spot bitcoin ETF trades on the price of bitcoin itself, while a futures-based ETF trades on the price of CME’s bitcoin futures product (hence pegged to an index). Bitcoin ETF advocates argue that the futures market is still based on the underlying spot bitcoin price, while the SEC notes that the CME futures market is regulated by the Commodity Futures Trading Commission (CFTC), a federal agency.