SEC Resists Against Grayscale’s Lawsuit Over Bitcoin ETF Denial

December 13, 2022 6:39 pm Comments

Earlier this year, asset manager Grayscale had taken some legal action against the SEC since the SEC had rejected Grayscale’s application to create a spot Bitcoin ETF.

So far, the SEC has continually denied all requests to create spot ETFs that involve crypto and have only approved future based ETFs.

Investors believe that it is only a matter of time before a spot Bitcoin ETF gets approved and that this would finally allow a lot more new capital to enter the crypto industry.

As a result, this could be one of the missing pieces that is needed before the next crypto bull run starts again in the next few years.

To go into more detail, Grayscale had filed a lawsuit against the SEC on June 29 which was the day that the SEC had rejected its application.

CoinDesk reports:

Grayscale filed suit against the SEC on June 29 – the same day the SEC rejected its application – and asked the U.S. Court of Appeals for the District of Columbia Circuit to review the SEC’s order. Grayscale is a sister company of CoinDesk.

The suit was followed by a flurry of support from the wider crypto industry and beyond, and five amicus curiae (friend of the court) briefs were filed in the case.

But the SEC is sticking to its guns.

In the regulator’s first response brief since Grayscale filed suit, the SEC reiterated that its reasons for denying Grayscale’s applications were consistent with its earlier decisions to deny every other spot bitcoin ETF application it had received.

Despite the SEC’s denial of another spot ETF application, it seems that Grayscale is in the best position to fight against the SEC.

The company stated that approving the use of future based ETFs and denying spot ETFs for crypto makes the SEC’s reasoning inconsistent.

As a result, the SEC had violated an act called the Administrative Procedure Act.

On the other hand, the SEC continues to defend its position that the two types of ETFs are different products and should thus have different regulations.

Speculators are waiting for how the court will define these two products.

Outside of the United States, spot Bitcoin ETFs have already been approved, but access to them is difficult for American citizens.

CoinDesk concludes:

Grayscale and would-be spot ETF applicants that came before the SEC have argued the surveillance-sharing agreements the regulator wants aren’t necessary in the case of bitcoin, which they have argued has “novel protections” against fraud.

But the SEC disagrees. In the filing last week, it pointed to statements made by Grayscale itself in its registration statement, which warns customers of the “unregulated nature and lack of transparency” surrounding the operations of spot-trading platforms, the risks of hacking and the risk of “fraud and manipulative activity” at bitcoin trading platforms.

Grayscale’s reply to the SEC is due on Jan. 13. The SEC’s response to Grayscale is due on Feb. 3.
After all briefs have been submitted, the judge will review the SEC’s decision to reject Grayscale’s application and make a determination.

As the lawsuit progresses, shares of Grayscale’s largest fund, the Grayscale Bitcoin Trust (GBTC), are trading a record 47% discount to the value of the underlying cryptocurrency.

The outcome of this lawsuit will also have a major impact on the rest of the crypto industry similar to the lawsuit between Ripple and the SEC.

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