The Grayscale Bitcoin Trust's conversion into a spot Bitcoin ETF has been rejected by the Securities and Exchange Commission (SEC). Grayscale Investments has filed a lawsuit in response to the decision, which could be resolved late next year or early in 2024.
- The SEC issued a filing rejecting the conversion, citing concerns about market manipulation and investor protection.
- Grayscale had launched a campaign to gain support for the change, but it had been futile.
- A lawsuit has been filed by the investment firm.
The SEC stated in its filing that the application failed to show that it was not "designed to prevent fraudulent and manipulative acts and practices" and to "protect investors and the public interest."
Grayscale, one of the largest institutional cryptocurrency providers, applied for the change last year. Grayscale had made it clear that it would respond with action, even asking the public for its support. The SEC was facing a decision deadline of July 6, having already experienced multiple delays.
The SEC had previously rejected Bitwise's application for a spot bitcoin ETF earlier in the week. So far, the agency has not approved any such ETFs, citing investor protection and market manipulation as justifications.
This has been the subject of numerous debates, with supporters of approval claiming that it would go a long way toward alleviating those concerns.
The SEC has approved a number of futures-based ETFs, and Grayscale contends that it makes no sense to allow futures ETFs while rejecting spot ETFs under the Securities Exchange Act of 1934. As a result, Grayscale feels compelled to sue.
In response, Grayscale sues the SEC.
Grayscale had threatened to sue the SEC if its application was rejected, and it was quick to announce that it had already done so after the filing.
Donald B. Verrilli, Jr., the firm's senior legal strategist and former U.S. Solicitor General and partner at Munger, Tolles & Olson, filed an appeal against the decision.
In response to the lawsuit, Grayscale CEO Michael Sonnenshein stated:
“Grayscale supports and believes in the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation – and 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.”
A court decision on the lawsuit is expected sometime between the third and first quarters of next year. It could also end up in front of the Supreme Court, setting up a showdown that would make national headlines.
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