Jun 30, 2022 - Economy & Business

Grayscale suing the SEC after spot bitcoin rejection

Illustrated collage of a scrap of destroyed graph paper with a market trend line and hanging boxing gloves. The SEC logo is peeking out in the background.
Illustration: Aïda Amer/Axios

Grayscale Investments, the firm behind the world's largest bitcoin fund, is suing the Securities and Exchange Commission following its rejection of the firm's bitcoin spot ETF proposal.

Why it matters: Financial advisors, in particular, have been eager to see a spot bitcoin ETF to improve accessibility, cost and tax treatment.

  • The approval of a spot bitcoin ETF could draw new money into the sector, which it could use right about now.

Details: Grayscale CEO Michael Sonnenshein in the hours following the rejection Wednesday said the firm filed a petition with the U.S. Court of Appeals for the District of Columbia, challenging the denial.

  • The fund, known to investors by its ticker "GBTC," has traded at a persistent discount to bitcoin since early 2021, which widened to as much as 30% recently.
  • Be smart: A spot ETF would be a direct bet on bitcoin, as opposed to futures-based bitcoin ETFs, which are more indirect bets on the asset.

Context: The SEC on Wednesday rejected the firm's proposal for a bitcoin spot ETF, for the same reason it rejected countless other applications:

  • Failure to prove that such an ETF would adhere to "the rules [that] a national securities exchange be 'designed to prevent fraudulent and manipulative acts and practices' and 'to protect investors and the public interest.'"

Reality check: Grayscale's lawsuit, as well as the rejection, was widely expected.

  • Sonnenshein in late March said the firm would consider a lawsuit in the event of a rejection.
  • Grayscale had been aggressively pushing back on the premise of the SEC's prior spot bitcoin ETF rejections, placing ads all around Washington D.C., encouraging investors to write to the SEC.

The big picture: The SEC has rejected a raft of proposals from other shops, similar to Grayscale's, starting late 2021.

  • Proposals from VanEck, Wisdomtree, Kryptoin, Valkyrie, First Trust/Skybridge, Fidelity, Stone Ridge/NYDIG, Ark Invest/21Shares, Global X, One River, and now the pair of Wednesday's rejections for Grayscale and Bitwise.
  • At the same time, the SEC has approved futures-based ETFs from Valkyrie and Teucrium/Hashdex.

What they're saying: "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,” Sonnenshein said in a statement.

What others are saying: "A spot Bitcoin ETF would provide U.S. investors the ability to invest in bitcoin under the protections of the U.S. securities laws," Perianne Boring, founder and chief of the Chamber of Digital Commerce, said in a statement.

  • "While the SEC continues to stonewall approval of this important product, many other highly regulated jurisdictions, such as Canada and Australia, have approved spot Bitcoin ETF products for retail investors, leaving U.S. investors at a big disadvantage.”

What's next: One estimate for a resolution to Grayscale's lawsuit was put at the end of 2023 or early 2024.

Go deeper