Industry Updates

Grayscale labels SEC bitcoin ETF rejection ‘discriminatory’ as it opens lawsuit

Issuer considering Europe for its crypto offering

Stephan Roth


Grayscale Investments has labelled the Securities and Exchange Commission’s (SEC) decision to deny the conversion of Grayscale's Bitcoin Trust (GBTC) to a spot ETF “discriminatory” as it opens proceedings against the US regulator.  

Published earlier this week, the opening brief details the legal basis for Grayscale's argument, citing that the regulator has “arbitrarily” treated a spot bitcoin ETP differently than similar bitcoin future ETPs. 

It also argues that the test the SEC has applied to Bitcoin-related ETFs is "flawed" and has been inconsistently applied with "special harshness" to spot bitcoin ETFs, a statement from Grayscale explains. 

The brief is a response to the SEC's decision on 29 June to reject Grayscale's GBTC's conversion to a spot ETF on the basis that the plan drawn up by NYSE Arca did not do enough to prevent fraud and manipulation. 

According to the opening brief, the SEC had approved two separate proposals for ETPs in 2021 and 2022 that hold as assets bitcoin futures, after finding that those ETPs did "not present an unacceptable risk of susceptibility to fraud or manipulation". 

“That stark arbitrariness cannot be justified or reconciled with the Commission’s mandate to treat like cases alike. Rather, it can be only understood as a substantive judgment on the merits of a spot Bitcoin investment — the kind of substantive judgment that is outside the Commission’s authority,” the brief said.  

“The Administrative Procedure Act and Exchange Act require rules and regulations to be applied without favouritism for one type of product or another,” Craig Salm, Grayscale's chief legal officer said in a statement.

“On behalf of the US investment community, we are proud of the arguments we have outlined in Grayscale’s opening brief, and we look forward to the SEC’s response," Salm adds. 

The SEC's decision to deny Grayscale follows last month's consultation round, where the regulator sought market feedback on whether to greenlight the spot ARK 21Shares Bitcoin ETF. 

According to an SEC order on 29 August, the US regulator said it was considering a rule change to allow spot bitcoin ETFs to list and trade. 

Caught between a rock and a hard place, Grayscale decided in May to enter the European ETP market, where regulators are taking a more open approach to wrapped crypto products – in futures and spot form – unlike their US counterparts. 

The Grayscale Future of Finance UCITS ETF (GFOF) listed on the London Stock Exchange and Deutsche Börse and Borsa Italiana with a total expense ratio (TER) of 0.70%. 

At the time, Grayscale CEO, Michael Sonnenshein told ETF Stream, the firm would not rule out the possibility of acquiring a smaller crypto ETP issuer following their escapades into Europe.

The SEC has not responded to a request for comment. 

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