In a fresh turn of events, Grayscale Investments has triumphed in the courtroom, and now it’s pressing the Securities and Exchange Commission (SEC) to expedite the process of converting the Grayscale Bitcoin Trust into an exchange-traded fund (ETF). The firm’s legal counsel penned a letter to the SEC on Tuesday, requesting a discussion about the future course of action and arguing that there are no legitimate reasons for the regulator to continue obstructing the trust’s conversion into an ETF.
This development comes on the heels of a significant legal victory for Grayscale. Just last week, a panel of judges from the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC had been mistaken in its decision to reject Grayscale’s application to transform GBTC into an ETF. The SEC had dismissed this application, along with others for spot Bitcoin ETFs, citing a lack of adequate surveillance in Bitcoin trading platforms to detect fraudulent activities and manipulation. The judges, however, unanimously deemed the agency’s rejection of the application as arbitrary and capricious.
Grayscale Investments Urges SEC to Permit Conversion of Bitcoin Trust into ETF
Pressing for Change
Grayscale Investments, freshly victorious in a court case, is now urging the Securities and Exchange Commission (SEC) to hasten the process allowing the Grayscale Bitcoin Trust to transform into an exchange-traded fund (ETF). The investment firm’s attorneys submitted a letter to the SEC on Tuesday, seeking a meeting to discuss the way forward. They pointed out that there are no valid reasons for the SEC to continue blocking the conversion of the trust, recognized by its ticker GBTC.
The attorneys argued that each day the Trust’s shares are not listed on NYSE Arca, investors suffer unnecessary harm. Davis Polk attorney Joseph Hall penned this plea, which arrives just a week after a panel of judges at the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC had erred in rejecting Grayscale’s bid to convert GBTC into an ETF.
The Court Ruling
The SEC had previously rejected Grayscale’s application, along with other applications for spot Bitcoin ETFs, arguing that Bitcoin trading platforms lack sufficient surveillance to detect fraud and manipulation. However, the appellate judges unanimously ruled that the SEC had acted arbitrarily and capriciously in rejecting the application while also approving applications for exchange-traded funds that hold Bitcoin futures.
The SEC now has until mid-October to request a wider panel of judges to review this decision, or it could appeal to the Supreme Court. However, many policy analysts believe such an appeal would be unsuccessful due to the court’s skepticism of other regulatory actions.
Awaiting SEC’s Decision
While the SEC could potentially approve Bitcoin ETFs as early as this year, there is a chance the agency might choose to appeal the Grayscale court decision, delaying potential approvals until 2024. This would also allow the SEC time to review all applications concurrently. This delay has already displeased some GBTC investors, whose shares rose 0.4% to $18.55 on Tuesday.
Despite the court victory, GBTC trades similarly to a closed-end fund, with a market price consistently below the value of the Bitcoin it holds. Even after the discount fell drastically following the court decision, the fund’s price remains 20% below the value of the Bitcoins held by the trust.
In response to Grayscale’s victory, the SEC could attempt to retract its approval of futures-based Bitcoin ETFs to refute the argument that it has inconsistently blocked a spot-based fund. However, this course of action is seen as risky, given the hundreds of millions of dollars already invested in such products. SEC Chair Gary Gensler is set to testify in front of lawmakers next week, where he will likely face questions on the agency’s future plans.
The SEC has not yet responded to requests for comment, but stated last week that it is reviewing the court decision to determine its next course of action.
Grayscale’s push for the SEC to permit the conversion of its Bitcoin Trust into an ETF could mark a significant step forward in the recognition and regulation of cryptocurrency-based investments. However, the SEC’s decision could still go either way, potentially delaying Bitcoin ETF approvals until 2024. For now, investors and the market at large must wait for the SEC’s next move, which will likely shape the future of Bitcoin ETFs.