September 28, 2022

Grayscale sues SEC for refusing Spot Bitcoin ETF

  • Grayscale Investments is suing the SEC for denying its request to convert GBTC to an ETF.
  • The case was filed last night by the former great jurist who served in the Obama administration as US Solicitor General.
  • More than 11,000 comment submissions were sent to the SEC by investors, 99% of which supported GBTC’s transition to an ETF.

Grayscale Investments, one of the world’s largest digital asset managers, is suing the U.S. Securities and Exchange Commission (SEC) after the regulator rejected its request to convert its flagship bitcoin fund, GBTC, into a exchange-traded fund (ETF), by a Press release

“As Grayscale and the team at Davis Polk & Wardwell have pointed out, the SEC does not apply consistent treatment to similar investment vehicles, and therefore acts arbitrarily and capriciously in violation of the Administrative Procedure Act and the Securities Exchange Act of 1934,” said Donald B. Verrilli Jr., Grayscale’s senior legal strategist and former U.S. Solicitor General.

Verrilli was announcement as the newest member of Greyscale’s legal team on June 7, as the company prepared for the worst-case scenario. Grayscale also launched an investor letter campaign where more than 11,400 total submissions were sent to the SEC, 99% of which were in favor of transitioning the fund to an ETF.

“Through the ETF application review process, we believe US investors have overwhelmingly expressed 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 US regulatory perimeter,” said Michael Sonnenshein, CEO of Grayscale.

Grayscale announced its intention to convert the fund into an ETF in April 2021. A formal request to do so was then submitted later that year, in October. Since then, Grayscale has put a lot of effort to properly inform the public of its intentions and to meet all regulatory requirements.

Although the SEC has 240 days to make decisions on these matters, which would have ended on July 6, it can issue rulings sooner. While some may view this news as disheartening, the forced litigation of the issue could set a permanent precedent for the ecosystem that could be beneficial in the long run.