Grayscale Tries to Wrestle SEC Into Spot Bitcoin ETF Approval

The world’s largest crypto asset fund manager, Grayscale, has ramped up its efforts against the U.S. Securities and Exchange Commission which still refuses to approve a spot Bitcoin exchange-traded fund.

On Oct. 11, Grayscale announced that it had filed its opening legal brief in the Court of Appeals for the District of Columbia Circuit. The appeal challenges the decision by the SEC to deny the conversion of the Grayscale Bitcoin Trust fund (GBTC) into a spot Bitcoin ETF.

The fund conversion was denied by the SEC in late June as Grayscale, investors, and industry experts have been collating evidence supporting its approval. Before the rejection, the SEC allowed feedback and comments on the proposed conversion, the majority of which were overwhelmingly in favor. However, the regulator paid them no heed.  

According to the brief, the regulator’s disparate treatment of these products was “arbitrary, discriminatory, and in excess of the Commission’s statutory authority.”

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

SEC ‘inconsistent’ on Bitcoin ETF approvals

It also argues that the test the SEC applies to Bitcoin-related ETFs has been “inconsistently applied with a “special harshness” to spot Bitcoin ETFs.” The regulator has already approved a number of Bitcoin futures ETFs, which are backed by futures contracts instead of a physical asset.

The test is flawed, according to Grayscale, as it doesn’t achieve the intended effect of protecting investors against potential fraud and manipulation since this can happen in futures markets as well as spot markets.

The firm claims that its proposal to convert the Grayscale Bitcoin ETF into a spot Bitcoin ETF satisfies legal requirements because it’s designed to prevent fraud and manipulation while protecting investors.

Craig Salm, Grayscale’s Chief Legal Officer, said that the product was designed so that investors could have regulated access to investing in Bitcoin before adding:

“The Administrative Procedure Act and Exchange Act require rules and regulations to be applied without favoritism for one type of product or another.”

The brief claims that existing investors could gain around $4 billion if the trust were converted to a spot ETF. The new fund would also be subject to public reporting requirements which would enhance investor protection.

The GBTC fund is currently trading at a discount of 36.4% and has assets under management of $12.36 billion, according to Ycharts.

Grayscale launches GDIO mining fund

Grayscale has just launched a Digital Infrastructure Opportunities (GDIO) fund that allows investors to gain access to Bitcoin mining infrastructure during the bear market.

“What we’ve found is that as investors are thinking about how to deploy capital into crypto winter, that there’s real interest in infrastructure, particularly Bitcoin mining,” said company CEO Michael Sonnenshein.