Grayscale Files Brief Against The SEC For Denying Spot Bitcoin ETF

By Kevin • January 20, 2023 2:59 pm • Comments

Earlier this year, Grayscale made news in the crypto industry when it decided to appeal against the SEC’s denial of its application to create a spot Bitcoin ETF.

This is not the first time that a firm had attempted to get a spot Bitcoin ETF approved by the SEC and many investors believed that it would only be a matter of time for it to happen.

So far, the SEC has denied all applications for spot Bitcoin ETFs and Grayscale filed in its brief that explains how the SEC is making the wrong decisions.

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Specifically, Grayscale stated that the SEC had acted arbitrarily in treating spot ETF products different from future based products.

However, it seems that there is data that shows that there is a major correlation between futures markets and spot markets.

Whether or not this is enough of a reason to successfully appeal against the SEC’s denial is still unknown.

CoinTelegraph reports:

It also claimed the SEC had exceeded its authority:

“The Commission is not permitted to decide for investors whether certain investments have merit – yet the Commission has done just that, to the detriment of the investors and potential investors it is charged to protect.”

Grayscale chief legal officer Craig Salm said in a tweet, “The case is moving swiftly. While timing is uncertain, oral arguments may be as soon as Q2 [2023].” Grayscale applied to the SEC in October 2021, and the agency denied that application on June 29.

Fir Tree Capital Management sued Grayscale on Dec. 6 demanding, among other things, that Grayscale give up its appeal of the SEC decision. “That strategy will likely cost years of litigation, millions of dollars in legal fees, countless hours of lost management time, and goodwill with regulators,” the complaint read.

Grayscale is owned by the Digital Currency Group, which is currently undergoing a financial squeeze.

This appeal by Grayscale is quite significant for the crypto industry because it could largely affect the amount of capital that enters the crypto markets.

One of the major obstacles for investors today is that it is hard for institutional investors to gain exposure to assets like crypto without buying it directly.

By creating an spot ETF that can be accessed through traditional financial markets, this then allows a lot of traditional capital to enter the crypto markets.

Many experts see this is one of the major requirements needed for the next big crypto bull run and for the industry to truly surpass $10 trillion in market cap.

Therefore, the SEC’s continual denial of spot BTC ETFs and other spot crypto ETFs is an obstacle that is slowing down the growth of crypto within the US.

DeCrypto.co concludes:

Though the market has been waiting for a spot Bitcoin ETF for several years, with Grayscale’s litigation also earning the support of many in the industry, the asset manager’s ailing GBTC product has piled on the pressure to secure approval for its conversion.

GBTC lets investors gain exposure to Bitcoin without the need for to hold the asset itself. Of late, though, the Grayscale product is trading at a hefty discount to the underlying BTC it hopes to represent.

According to Ycharts, the discount is currently 39.68% but has hit a low of 48.89%.

This discount has emerged due to recent market volatility as well as the inability to redeem the GBTC shares for actual Bitcoin. If the product was converted to a traditional ETF, this redemption process would be available and would likely erase the discount as arbitragers traded away the difference.

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