Grayscale’s Response to A Brief by The SEC

Grayscale replied to a brief filed by the SEC last month, in which the hedge fund says that converting the Grayscale Bitcoin Trust (GBTC) into a spot BTC ETF would greatly benefit traders by unlocking value. This will also increase investor protections.

Grayscale noted in the GBTC lawsuit that “For more than 850,000 investors, converting GBTC to a spot Bitcoin ETF would unlock over $4 billion of value by providing the regulatory relief necessary for the product to simultaneously create and redeem shares, thereby enabling arbitrage to address both premiums and discounts of the shares as compared to net asset value.”

“This conversion would also subject trading in GBTC to heightened regulatory standards and enhance investor protections. The SEC’s reluctance to further bring Bitcoin into the regulatory perimeter through a spot Bitcoin ETF has prevented US investors from gaining the Bitcoin investment exposure they both want and deserve,” it further added.

However, Grayscale first sued the SEC in June 2022 and in an October 2022 filing, the firm alleged that SEC was displaying bias when it rejected its bid for a Bitcoin ETF in June. In the lawsuit, Grayscale claims that the SEC’s approval of other BTC-related products, such as its approval of a BTC futures ETF on the Chicago Mercantile Exchange (CME), is inconsistent with its rejection of Bitcoin ETFs.

In the official court filing, Grayscale noted that “The Order in this case is arbitrary to its core. Its central premise – that the Exchange’s surveillance-sharing agreement with the CME provides adequate protection against fraud and manipulation in the Bitcoin futures market but not the spot Bitcoin market – is illogical.”

On the other hand, on December 9th, 2022 the SEC filed its first legal brief as part of Grayscale lawsuit challenging their decision to deny GBTC’s conversion to a spot Bitcoin ETF.

According to GBTC lawsuit, “Despite the fact that Bitcoin futures ETFs and spot Bitcoin ETFs do not present meaningfully different risks of fraud and manipulation, the SEC has now approved several Bitcoin futures-based ETFs, yet it has continued to disapprove spot-based Bitcoin ETF applicants.”

The Chief Legal Officer of Grayscale also mentioned in a recent tweet that “Grayscale will soon file the next brief in our suit challenging SEC’s decision to deny $GBTC conversion to a spot Bitcoin ETF. The case is moving swiftly. While timing is uncertain, oral arguments may be as soon as Q2. Final decision in DC Cir. App. Court could come by Fall.”

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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