Grayscale Sues The SEC For Its Bitcoin ETF Application Rejection

By Kevin • June 30, 2022 9:26 pm • Comments

It looks like Grayscale was not kidding when it previously mentioned that it would consider all legal options if the SEC decided to reject its Bitcoin ETF application again.

Just one hour after the rejection was released, the firm filed the lawsuit against the SEC indicating that it was completely prepared for the outcome.

According to the SEC, the reason for the rejection was that it was concerned about market manipulation and lack of “investor protection” which disappointed many within the crypto community.

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In preparation for this, Grayscale had also hired former Solicitor General Don Verrilli to handle this case and the firm will be asking the US Court of Appeals to review this case.

CoinDesk reports:

The investment firm announced earlier in 2022 it was prepared to sue the SEC in the event of a rejection, saying it would file a proceeding under the Administrative Procedures Act.

To that end, Grayscale tapped former Solicitor General Don Verrilli, who has experience in APA proceedings.

“Grayscale supports and believes in the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation – and 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,” Grayscale CEO Michael Sonnenshein said in a statement Wednesday.

Essentially, the company will argue that the SEC has to allow products that are like other products already trading, in this case bitcoin futures ETFs.

The firm has also mentioned that the approval of Bitcoin futures already indicates that the crypto market is starting to be seen as reliable which contradicts the recent rejection.

Therefore, it did not make sense on why the SEC would approve Bitcoin futures but not Bitcoin spot ETFs.

As for the timeline for this new lawsuit, the CEO is expecting that this will last around a year which adds it to a list of current SEC lawsuits that the agency has against the crypto industry.

Grayscale CEO Verrilli claims that the SEC is failing to apply consistent treatment to similar investment vehicles and is violating the Administrative Procedure Act and Securities Exchange Act of 1934.

This inconsistent treatment draws very similar parallels to how certain digital assets like XRP are being labeled by the SEC as securities while other similar assets get different treatment.

CNBC concludes:

The SEC was not immediately available for comment outside of normal U.S. working hours.

Grayscale argues the SEC’s position is inconsistent in light of previous decisions to greenlight other bitcoin-based ETFs, including those based on futures markets and one that allows investors to short — or bet against — the cryptocurrency.

Crypto bulls had pinned their hopes on the SEC approving the first U.S. spot bitcoin ETF, a move that would potentially open the cryptocurrency up to more institutional investment.

The move to deny Grayscale’s bitcoin ETF application adds to a slew of negative news around crypto lately. Earlier this week, embattled crypto hedge fund Three Arrows Capital collapsed into liquidation.

Bitcoin was trading at $20,085 late Wednesday, down 1% in the last 24 hours. Cryptocurrencies have lost a combined $2 trillion in over market value since the peak of the bubble in November 2021.

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