Bitcoin: Grayscale pins SEC over ‘special harshness’ to spot ETFs

Lavina Daryanani
Source: CryptoSlate

In October last year, Grayscale filed its papers with the SEC to convert its Bitcoin Trust into an ETF. Post repeated extensions, the regulatory body issued a rejection order towards the end of June. Per the same, Grayscale’s application failed to answer the regulator’s questions pertaining to how it’d prevent market manipulation and protect investors and public interest.

After the rejection order was issued, Grayscale immediately chose to tread on legal waters and filed a lawsuit challenging the SEC’s decision.

Read More: Grayscale sues SEC over Bitcoin ETF conversion rejection

Rejection is ‘discriminatory’ & ‘capricious’

In the opening brief of its lawsuit against the SEC, Grayscale has contended that the rejection over the risk of fraud and manipulation in the spot Bitcoin market is “capricious” and “discriminatory.” More so because the SEC has allowed futures-based Bitcoin ETFs that are exposed to similar concerns.

Grayscale’s lawyers told the D.C. Circuit, that the behavior of the agency reflects a “special harshness based on [the SEC’s] opinion about Bitcoin’s merits as compared to other types of investments.”

The brief also noted,

“That stark arbitrariness cannot be justified. In disapproving the proposed spot Bitcoin [exchange-traded product] here, the commission applied an exceedingly stringent version of the test — going so far as to make findings that directly contradict findings that it made in its orders approving the Bitcoin futures ETPs.”

Grayscale’s Bitcoin Trust fund was started in 2013. GBTC is trading at discounted rates for more than a year. Per the company, the proposed conversion will help Grayscale tackle the discount and aid in bringing underwater investors afloat.

Source: YCharts

In an interview with Reuters, Grayscale’s Chief Legal Officer Craig Salm said,

“So logically speaking, if you’re OK with one, you must also be OK with the other because you otherwise would be arbitrary.”

He added,

“I believe we have very simple, straightforward, and compelling arguments here. In many ways, it’s not about Bitcoin at all. It’s about fair treatment under the law.”

The SEC, however, seems to be stern with its outlook, for it rejected WisdomTree’s spot Bitcoin ETF conversion application on 11 October. The SEC said any rule change in favor of approving the ETF would not be “‘designed to prevent fraudulent and manipulative acts and practices” nor “protect investors and the public interest.”