Major Bitcoin ETF Legal Battle Begins as Grayscale Sues SEC
One of the biggest bitcoin (BTC) and crypto investment companies, US-based Grayscale Investments, sued US Securities and Exchange Commission (SEC) after it rejected its application to convert the Grayscale Bitcoin Trust (GBTC), the world’s largest BTC fund, to a spot exchange-trading fund (ETF).
“It is the SEC’s arbitrary and capricious actions and discriminatory treatment of issuers that necessitates elevating this matter to the courts in the best interest of GBTC and our investors,” the company said.
According to them, the market watchdog is failing to apply consistent treatment to BTC investment vehicles as evidenced by its denial of GBTC’s application for conversion to a spot ETF, but approval of several BTC futures ETFs.
“If regulators are comfortable with ETFs that hold derivatives of a given asset, they should logically be comfortable with ETFs that hold that same asset,” they added.
Meanwhile, the SEC still claims that the GBTC conversion would not prevent fraudulent and manipulative acts and practices and would not protect investors and the public interest.
The GBTC now holds USD 12.9bn worth of BTC. Per Grayscale, as of June 29, GBTC shares traded at an approximately 30% discount to net asset value, representing around USD 8bn of unrealized shareholder value.
“We hold firm in our belief that converting GBTC to a spot Bitcoin ETF remains the best option for investors: it would effectively eliminate the discount and cause the shares to track the price of bitcoin,” the firm said.
“Having read the 80 pages of the SEC’s previous rejection, I can’t imagine that they will think that during a smoldering crash of this magnitude it is a good time to very publicly change their mind,” crypto hedge fund Pantera Capital’s CEO Dan Morehead wrote in his monthly letter yesterday before the SEC rejected the application.
According to him, after the rejection “we will see the widest discount possible.”
“Seems like in the next month or two the washout will be the most extreme GBTC will ever see,” the CEO added.
At 08:30 UTC, BTC trades at USD 19,368 and is down almost 4% in a day and 3% in a week.
A much better solution would be to wind down the fund and return the underlying #bitcoin to investors, who are currently being milked for an outrageous 2% per year. Do the right thing, Grayscale.— Vijay Boyapati (@real_vijay) June 30, 2022
If GBTC converts to ETF, the discount will fall to zero near immediately since ETFs can be arbitraged daily.— Ari Paul ⛓️ (@AriDavidPaul) June 30, 2022
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– Grayscale Finds Rising Interest in Bitcoin as it Pushes for Spot BTC ETF
– Ethereum Futures ETF May Come Before Spot Bitcoin ETF – Analyst
(Updated at 08:32 UTC with comments from Dan Morehead, additional reactions, and the latest market data.)