Grayscale: the petition to the SEC

Grayscale Investments LLC files a brief of petitioner in its lawsuit against the SEC over its refusal to convert GBTC fund to a Bitcoin ETF, calling the regulator’s behavior arbitrary, capricious and discriminatory. 

Grayscale and the SEC’s rejection of Bitcoin ETFs: the first petition

The digital currency investment firm, Grayscale Investment LLC, filed a brief of petitioner in its lawsuit against the SEC, which earlier this year had made official its refusal to convert the GBTC fund to ETFs on Bitcoin. 

We’ve filed the opening brief in our lawsuit against the SEC, challenging their decision to deny our application to convert $GBTC to a spot Bitcoin ETF.

A “brief” thread:

— Grayscale (@Grayscale) October 12, 2022

“We’ve filed the opening brief in our lawsuit against the SEC, challenging their decision to deny our application to convert $GBTC to a spot Bitcoin ETF.”

Grayscale wants to convert its $12 billion GBTC fund into a Bitcoin ETF, but has been blocked by the US Securities and Exchange Commission, which rejected the offer due to risk of fraud and market manipulation. 

In this regard, Grayscale calls the SEC’s behavior “arbitrary,” “capricious,” and “discriminatory,” as the regulator would have authorized futures-based Bitcoin ETFs, which are also exposed to similar concerns. 

Grayscale: flawed Bitcoin ETF testing and harm to 850,000 investors

The cryptocurrency manager also criticizes the SEC’s testing of Bitcoin-related ETFs as follows:

“the test the SEC has applied to Bitcoin-related ETFs, and only Bitcoin-related ETFs, is flawed and has been inconsistently applied with a ‘special harshness’ to spot Bitcoin ETFs.”

Not only that, following with the document, Grayscale also claims that the SEC’s refusal to approve the conversion of GBTC to Bitcoin ETFs would also harm the 850,000 investors who already own shares in the fund. 

In this regard, here is what the text states::

“Given that the Commission did not approve the Trust to trade as an ETP on the Exchange, the value of its shares cannot closely track the value of the Trust’s underlying bitcoin assets—depriving Trust shareholders of billions of dollars in value.”

“This is going to be a long lawsuit,” Craig Salm’s words

Today’s petition is just a first step in a long road Grayscale plans to take against the SEC, provided it succeeds in making its case. 

In July, Grayscale’s CLO (Chief Legal Officer) Craig Salm stated that the lawsuit could go on for a year or two. 

Thus, it is a series of written pleadings that Grayscale will submit to the court setting out the substance of their arguments, while the SEC may, in turn, provide its counterarguments. 

At this stage, third parties may also participate by sending their arguments to the court, provided they have a strong interest in the matter. At the same time, the decision will be made by three selected judges who will evaluate the case.