Grayscale sues SEC for denying BTC ETF approval
Despite the company's significant efforts to obtain clearance, the SEC denied Grayscale Investments' approval to transform its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot-based bitcoin ETF on Wednesday.
The decision follows the SEC's rejection of Bitwise's application for a spot bitcoin ETF on Wednesday.
After a protracted struggle to convince the SEC that the product had enough investor security, the refusal is a blow not only to Grayscale but to the whole cryptocurrency industry.
The significance of a BTC spot ETF in the U.S. markets
The significance of a Bitcoin based spot ETF being available on the listed U.S. markets cannot be overstated. It would mean that institutional and everyday investors could buy and sell Bitcoin like any other security on the market.
This would give institutional investors more confidence in the market and could help to fuel the next bull run. It would also make it much easier for average people to invest in Bitcoin, which could help further mainstream adoption.
Why was Grayscale's BTC trust spot ETF approval denied?
Grayscale's BTC Trust Spot ETF application was recently rejected by the SEC. The reason behind the rejection is:
- The SEC is concerned about Bitcoin's volatility and its potential to cause market instability.
- The SEC is concerned investors would lack sufficient protections under the Grayscale proposal.
Grayscale's legal action
In October 2021, Grayscale filed to have its Bitcoin Trust known as GBTC, become an ETF, but the decision was repeatedly postponed. Grayscale has increased pressure on the authority to support it, including by providing a means for individuals to email their support immediately.
In a petition, Grayscale promptly challenged the SEC's judgment to the U.S. Court of Appeals for the District of Columbia Circuit. Donald B. Verrilli Jr., a former solicitor general of the United States, is Grayscale's senior legal strategist and is leading a group of lawyers from Davis Polk & Wardwell in this case.
According to Verrilli, the SEC is "failing to apply consistent treatment to similar investment vehicles, and acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934."
SEC Chair Gary Gensler has repeatedly stated that he wants to see greater control of cryptocurrency exchanges before authorising a BTC spot ETF.
The focus of investors and cryptocurrency experts will now shift to what Grayscale can and will do to secure permission for conversion. On June 27, CEO Michael Sonnenshein stated that the business will be "preparing for all possible post-ruling scenarios." On the same day, Grayscale also said that if its application were to be approved, it would work with market makers Virtu Financial and Jane Street to assist in turning GBTC into an ETF.
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Author: Priya Kumari
Priya is a passionate content writer and the co-founder of Finendorse. She is an enthusiastic crypto investor and has a huge interest in the upcoming digitisation age.