December 8, 2022
Grayscale Sues SEC For Spot Bitcoin ETF Rejection 2023

Greyscale, the manager of the world’s largest bitcoin fund, Grayscale Sues SEC For Spot Bitcoin ETF Rejection filed a lawsuit against the agency after regulators denied its request to convert the investment vehicle into an exchange-traded fund.

Earlier this week, the SEC disapproved proposed changes to the listing rules for Grayscale Bitcoin Trust shares, as well as Bitwise Bitcoin ETP Trust shares in spot bitcoin exchange-traded funds.

As a result of Grayscale’s proposal, the watchdog is concerned investors will not receive adequate protection.

A conversion plan is underway to convert Grayscale Bitcoin on Intercontinental Exchange Inc’s (ICE.N) NYSE Arca exchange.

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More About the Grayscale Sues SEC For Spot Bitcoin ETF Rejection 2023

SEC rejected its application:

The demand for GBTC shares cannot be adjusted like an ETF, so it cannot be created and redeemed as the market changes. The price of GBTC has dropped 28% below its net asset value due to that, effectively turning it into a closed-end fund. 

Earlier in 2022, the investment firm announced that it would file an administrative proceeding if the SEC rejected its application.

A product such as bitcoin futures ETFs must be allowed by the SEC, as they are similar to other products already trading on the market.

As a result of the Grayscale Sues SEC For Spot Bitcoin ETF Rejection SEC’s continuation of denying spot Bitcoin ETFs to the U.S. market, Grayscale CEO Michael Sonnenshein expressed deep disappointment and vehement disagreement.

Bitcoin futures ETFs:

Grayscale Sues SEC For Spot Bitcoin ETF Rejection

Bitcoin futures ETFs, which offer derivative contracts based on future Bitcoin prices, were finally allowed by the SEC in October. Still, Bitcoin spot ETFs haven’t been approved, which would be priced according to the market price of Bitcoin.

Investors were encouraged to write to the SEC after Grayscale aggressively pushed back on the SEC’s previous rejection of its bitcoin ETF.

It declined to comment on Wednesday’s rejection of Bitwise’s spot bitcoin ETF proposal.

The improvement of SEC:

Whenever Grayscale Sues SEC For Spot Bitcoin ETF Rejection the SEC has approved other bitcoin-based ETFs, such as those based on futures markets as well as those that permit investors to short the cryptocurrency, Grayscale argues the position is inconsistent.

It dropped just off its 18-month low of $17,592 on June 18 as bitcoin fell below the landmark $20,000 figure on Thursday. As of November, bitcoin was priced at $69,000, a record high.

Earlier this week, Bitwise Asset Management noted that it was disappointed that the Securities and Exchange Commission disapproved its application for the Bitwise Bitcoin ETP Trust. The company cited the SEC’s prior denial of the application in a statement.

Grayscale said about US regulators:

An ETF conversion could unlock $8 billion in investors’ value, Grayscale said in a May meeting with US regulators.

“The SEC fails to apply consistent treatment to similar investment vehicles, resulting in arbitrariness,” said Grayscale’s general lawyer, Don Verrilli.”

This latest rejection is Grayscale’s fourth rejection since the firm began applying for ETFs in early 2017, with this ruling coming just a week before the comment period closes.

A statement released by Bitwise said the company remains “committed to offering high-quality cryptocurrency products to investors.”

There was no comment from an SEC spokesperson beyond the agency’s order.

Grayscale had applied in October for NYSE Arca’s approval to become a spot Bitcoin exchange-traded fund through its US$13.5 billion Grayscale Bitcoin Trust.

The Rejection of  Grayscale’s application:

Grayscale’s application was rejected because the SEC did not consider whether bitcoin or blockchain technology had any value as an innovation or investment.

There was an increase in price for Grayscale Bitcoin Trust on Thursday. There has been a loss of more than 50% since the beginning of the year.

Greyscale’s application was denied by the SEC, and the SEC declined to comment beyond that.

A slew of negative news about crypto lately has led Grayscale to deny its bitcoin ETF application. Three Arrows Capital, which was embroiled in controversy this week, went bankrupt.

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