SEC Rejects Grayscale BTC Proposal, GBTC Files a Lawsuit

The Securities and Exchange Commission (SEC) of the United States has rejected Grayscale Investments’ application to convert Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin exchange-traded fund (ETF).

The Commission communicated its resolution via a 48-page document with File No. SR-NYSEArca-2021-89 published on Wednesday, June 29. The SEC reached this decision after GBTC’s committee failed to answer critical questions concerning preventing market manipulation and investor protection. A part of the SEC resolution read:

“The Commission concludes that NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), which requires, in relevant part, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.”

In light of the decision of the SEC, Grayscale Investments has filed a lawsuit challenging the decision denying GBTC its proposed conversion to a spot Bitcoin ETF. They filed the petition with the United States Court of Appeals for the District of Columbia Circuit. The suit will argue that the SEC “violated administrative procedure act and Securities Exchange Act of 1934”.

Since 2013, Grayscale has worked to build the world’s most prominent Bitcoin investment vehicle, GBTC. Grayscale voluntarily filed registration statements with the SEC that have increased information available to investors and subjected these products to increased SEC oversight. Grayscale has also worked proactively for years to provide investors with complete disclosures and risk factors about GBTC and its expansive crypto investment product family.