Bitcoin: Will this move strengthen Grayscale’s ETF conversion?

Lavina Daryanani
Source: Bitcoinist

Crypto asset managing firm Grayscale had filed its papers with the SEC last October to convert its flagship Trust—GBTC— into a spot Bitcoin ETF. At the beginning of this year, the regulatory agency opened its doors for community comments and feedback on the same. Back then, close to 95% were in favor of Grayscale’s proposal.

The time for the SEC to take a final call is fast approaching, with July 6 being the deadline for the Securities and Exchange Commission to make a decision on Grayscale’s application. In the recent past, the regulatory agency has rejected several such conversions, and resultantly, Grayscale’s spirits are not all that high.

However, in what is the latest move, the firm has hired Donald Verrilli, a top legal mind from the Obama administration to strengthen its legal team. Verrilli, notably, worked as US solicitor general from 2011 to 2016 under the Obama administration, representing the government in a host of Supreme Court cases.

Highlighting the motive behind the same, Craig Salm, the firm’s chief legal officer, said in an interview with Bloomberg,

“In the name of being prepared for all possible outcomes, if one option is potentially bringing a lawsuit against the SEC, well what better person to have as a legal strategist than somebody who has represented the US government?”

 Grayscale has evidently been weighing the possibility of the ruling not being in its favor, and thus, has been working towards keeping all its bases covered. Per Bloomberg,

Verrilli has been working with the firm’s internal lawyers, as well as external lawyers at Davis Polk & Wardwell LLP, to get ready for possible litigation, including preparing substantive legal arguments and coming up with a procedural strategy, according to Salm. 

State of the Bitcoin trust

The deteriorating state of Grayscale’s Bitcoin Trust has hardly improved over the months. As highlighted recently, GBTC shares are currently trading at merely 2/3rd of their value relative to the NAV. In fact, GBTC’s daily volume has also been on a macro downtrend. When compared to this time last year, the average volume has dunked by approximately 4-5 times, bringing to light the eroding interest of institutions to park their funds in this investment vehicle.

Converting the trust into an exchange-traded fund does have the potential to reverse the tides back in Grayscale’s favor. In fact, time and again, the firm has argued the same and asserted that the conversion would bring the price of GBTC closer to its NAV.

In fact, towards the end of March, the firm’s CEO Michael Sonnenshein hinted that the firm wouldn’t hesitate to tread on the legal path if its proposal was denied. When was asked if he would consider the Administrative Procedure Act (APA) lawsuit option, he had told that “all options are on the table.”

Salm reasserted the same thing and told Bloomberg that strengthening the legal team reaffirms Grayscale’s “commitment to doing whatever we need to do to convert GBTC into an ETF.”