Grayscale is serious about its case against the SEC

After the rejection of Grayscale’s application to convert its GBTC fund into an ETF, the company sued the SEC. 

Grayscale does not drop lawsuit against the SEC

It now turns out that Grayscale really means business, so much so that it is willing to pursue the lawsuit even for long enough to make its case. 

Indeed, recently Grayscale’s CLO (Chief Legal Officer) Craig Salm said the lawsuit could go on for a year or two. 

“What is the basis for Grayscale’s argument?”
“What happens after the Petition for Review is filed?”
“How long will legal proceedings take? @CraigSalm, Grayscale’s Chief Legal Officer, addresses these questions and more: https://t.co/zbI0VzbTq5 $GBTC

— Grayscale (@Grayscale) July 8, 2022

Salm revealed that Grayscale has been working hard to meet all of the SEC‘s demands, and that over the past few months it has received more than 11,500 letters in favor of converting GBTC into an ETF. 

The first step after the rejection was to file a petition with the court in which they asked for a review of the decision, but this is only the first step. 

In the coming weeks and months, Grayscale will submit written briefs to the court setting out the substance of their arguments, while the SEC will have the opportunity to provide its counterarguments. Third parties with a strong interest in the matter may also send their arguments to the court at this stage. 

Parallel to this process, three judges will be selected to evaluate the case and ultimately make a decision.

Salm revealed that he has respect for the people who work at the SEC and have spent years working on difficult issues presented by digital assets, but that he disagrees with their decision. 

The point that Grayscale insists on is the difference in treatment between ETFs on Bitcoin futures, which have already been approved by the SEC, and those collateralized using spot BTC, which have all been rejected. The SEC makes the distinction because it believes the exchange where Bitcoin futures are traded is sufficiently regulated and supervised “to account for concerns such as fraud and manipulation”.

Grayscale pursues its case regarding ETF approval

By contrast, Grayscale sees Bitcoin futures as deriving their price from the underlying spot markets, so approval of futures ETFs but not spot ETFs is “arbitrary and capricious”, in other words, “unfair discrimination” in violation of the Administrative Procedure Act (APA) and the Securities Exchange Act of 1934 (“Exchange Act” or “’34 Act”).

Salm also revealed that in the event of losing this lawsuit, he may also seek a hearing “en banc” or even appeal to the US Supreme Court.

The process following the lawsuit actually has a shortened timeline because they were able to go directly to the D.C. Court of Appeals, skipping one level of the US court system. However, federal litigation of this type can typically take anywhere from twelve months to two years. 

Salm concluded by saying: 

“However long it takes, we believe the strength of our arguments should result in a final decision in our favor at the D.C. Circuit Court of Appeals”.