Grayscale: SEC Broke the Law in Bitcoin ETF Denial
The SEC in June denied Grayscale's application to turn its bitcoin trust into a spot bitcoin ETF.
Grayscale Investments filed late Tuesday its opening legal challenge to the Securities and Exchange Commission’s rejection of the firm’s bid to convert its $12 billion Grayscale Bitcoin Trust to a spot bitcoin ETF.
The SEC denied Grayscale’s application on June 29. Grayscale announced the same day that it was suing the securities regulator over its decision.
“Although bitcoin may be a relatively new asset, the legal issue here is straightforward,” states the brief, filed in the U.S. Court of Appeals for the District of Columbia Circuit.
The commission, the brief states, has violated the Administrative Procedure Act’s “most basic requirements by failing to justify its vastly different treatment of bitcoin futures ETPs and spot bitcoin ETPs.”
Indeed, the commission’s decision “is not merely discriminatory and unreasoned: it harms the 850,000 investors who own shares in the Trust,” Grayscale states.
“Given that the Commission did not approve the Trust to trade as an ETP on the Exchange, the value of its shares cannot closely track the value of the Trust’s underlying bitcoin assets — depriving Trust shareholders of billions of dollars in value. There is simply no justification for continuing to inflict such serious investor harms,” it explained.
The brief maintains that the SEC’s decision was arbitrary, discriminatory and in excess of the commission’s statutory authority.
Just months before denying the Grayscale conversion, the filing says, “the Commission had approved two separate proposals for ETPs that hold as assets bitcoin futures (a derivative of bitcoin), after finding that those ETPs did not present an unacceptable risk of susceptibility to fraud or manipulation.”
But, the brief continues, “the price of bitcoin futures is subject to the identical risk of fraud and manipulation as is the spot price of bitcoin. That is because bitcoin futures represent the market’s prediction of future spot bitcoin prices, and prices in the bitcoin spot and futures markets align more than 99% of the time.”
The Grayscale brief goes on to explain that if, as the SEC has concluded, “bitcoin futures ETPs do not pose an unacceptably high risk of fraud and manipulation, then by definition neither do spot bitcoin ETPs.”
The brief also points that the Commission “has treated them as categorically different — a result that violates the bedrock requirements” of the APA as well as “the express statutory command that a national securities exchange’s rules not discriminate among securities issuers.”
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