Back in October last year, Grayscale had filed its papers with the SEC to convert its Bitcoin Trust into an ETF. Post repeated extensions, the regulatory body issued a rejection order on Wednesday. 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.
APA violation?
The SEC, as such, is yet to flash a green light to a spot Bitcoin ETF. However, it has approved a handful of futures-based products already. Using the same argument in their stride, Grayscale sent a letter to the SEC in November last year. They’d claimed that the SEC giving approvals to futures products, but not spot ones was “arbitrary and capricious.” Grayscale also emphasized that the said bias could be labeled as a violation of the Administrative Procedure Act.
Re-emphasizing the same, Grayscale’s Senior Legal Strategist Donald B. Verrilli, Jr., said,
“As Grayscale and the team at Davis Polk & Wardwell have outlined, the SEC is failing to apply consistent treatment to similar investment vehicles and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.”
Here it is worth recalling that at the beginning of June, Grayscale hired Donald Verrilli, a top legal mind from the Obama administration to strengthen its legal team. Back then itself, the firm was weighing the possibility of the ruling not being in its favor. Verrilli, notably, worked as US solicitor general from 2011 to 2016 under the Obama administration. He had represented the government in a host of Supreme Court cases.
Grayscale takes a legal course
Post the rejection order was issued, Grayscale immediately chose to tread on legal waters. Michael Sonnenshein, Grayscale’s CEO took Twitter to proclaim that they’d filed a lawsuit challenging the SEC’s decision.
In a recently issued statement, the exec said,
“… we are deeply disappointed by and vehemently disagree with the SEC’s decision to continue to deny spot Bitcoin ETFs from coming to the U.S. market.”
In Q1 this year, the regulatory agency opened its doors for community comments and feedback on the conversion notion. Unsurprisingly, a majority of them [close to 95%] were in favor of Grayscale’s proposal. Chalking out the same, Sonnenshein added,
“Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the U.S. regulatory perimeter.“
He concluded by stating that Grayscale will continue leveraging its “full resources” to advocate for its investors and the “equitable regulatory treatment” of Bitcoin investment vehicles.