Grayscale Bitcoin Trust is gearing up for its latest legal challenge to US regulator the Securities and Exchange Commission’s long-running refusal to permit the world’s largest bitcoin investment vehicle to trade on the US equities market.
The beleaguered investment trust has been trying to float as a spot ETF for years, but under chair Gary Gensler, the SEC has staunchly blocked Grayscale’s attempts every step of the way.
In particular, the SEC has expressed concerns about potential market manipulation and fraud related to spot-based bitcoin ETFs
In contrast, futures-based bitcoin ETFs, which are permitted, are usually easier to launch because they are subject to less regulation since the futures markets are generally more transparent and liquid than the spot markets.
But Grayscale is not one to take no for an answer.
Most recently, in December 2022, the SEC threw water on Grayscale’s spot-ETF ambitions by crushing an appeal to the regulator’s previous ruling.
Earlier that year, Gensler nixed Grayscale’s plans on the grounds of protecting “investors and the public interest” since the proposal failed to demonstrate how it is “designed to prevent fraudulent and manipulative acts and practices”.
In a fresh petition filed in January 2023 before the US Court of Appeals, Grayscale called the SEC’s refusal “arbitrary to its core” and “illogical” given the SEC’s granting of permission for bitcoin futures contracts.
Grayscale said the SEC's decision should be held unlawful and set aside.
Grayscale feels the heat
Grayscale, which is a subsidiary of cryptocurrency conglomerate Digital Currency Group, is under exceeding pressure from shareholders to make good on its pledge to convert the trust into a spot ETF, which would make it the first to ever do so in the US.
Due to the nature of the vehicle, shares cannot currently be redeemed, leaving investors with only one option if they want to exit- sell them on to a willing buyer.
But with shares running at a near 50% discount to underlying bitcoin holders, there are few buyers willing to take them on.
Fir Tree Capital Management opened a lawsuit against Grayscale in December 2022 in an attempt to strong-arm the trust into allowing redemptions.
Grayscale faces legal action over its US$10.7bn bitcoin trust
Grayscale’s arguments against the SEC to convert GBTC to a spot Bitcoin ETF are scheduled for March 7, 2023 in the District of Columbia Court of Appeals.
Donald B. Verrilli, Jr., former US Solicitor General, partner at Munger, Tolles & Olson and Grayscale Senior Legal Strategist, will represent Grayscale during the oral arguments.