SEC Faces Grayscale Lawsuit After Rejecting Spot Bitcoin ETF


  • Grayscale is suing the U.S. Securities and Exchange Commission over its recent rejection of the company’s exchange traded fund (ETF) filing.
  • The company has been trying to secure approval for the first ever spot Bitcoin (BTC-USD) ETF.
  • The SEC is hesitant to approve of a spot crypto ETF, citing market volatility and manipulation.
SEC - SEC Faces Grayscale Lawsuit After Rejecting Spot Bitcoin ETF

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Another turbulent week for the market is winding down, but there’s no shortage of drama between crypto companies and regulators. The U.S. Securities and Exchange Commission (SEC) is coming under fire for its most recent rejection of Grayscale’s Bitcoin (BTC-USD) exchange-traded fund (ETF). Now, the SEC must prepare for a legal battle against the company.

The quest for a Bitcoin spot ETF has been a long one, full of setbacks for the firms looking to implement it. Grayscale is the leader of this effort, attempting multiple times in recent years to get such a fund to the market. Every time, though, the SEC shoots down the effort.

Why are these companies struggling to find SEC approval? After all, there are a bevy of Bitcoin futures ETFs on the market already. It’s because of the volatility in the market. The government body is reluctant to approve a spot ETF as it watches the whiplash price drops keeping the market in disarray. See, Bitcoin futures ETFs are a much easier beast to tame. Since they trade on the future price of Bitcoin, these ETFs can distance themselves slightly from the volatility.

On the other hand, spot ETFs directly trade Bitcoin. This exposes investors to a much higher chance of losses. Obviously, the SEC is looking to protect American investors, and it simply sees spot ETFs as putting Americans’ money in too risky a situation.

Grayscale, a crypto asset manager known for its ETF products, has been trying to find approval for its Bitcoin spot ETF for years now. After multiple rejections, the company has been gearing up to make this last application the final application. As the SEC rejects this newest attempt at getting the product to market, Grayscale is taking the SEC to court.

SEC Slapped With Grayscale Lawsuit After Rejecting Spot Bitcoin ETF

Recently, Grayscale was very outwardly hopeful in this most recent spot Bitcoin ETF application. A letter to investors in recent days thanked fans for their work in supporting the filing. More than 11,400 letters were sent to the SEC advocating for the ETF. The company also expressed the belief that the SEC has been getting comfortable with the idea of a spot ETF, finally. But unfortunately, it seems the company was getting a bit ahead of itself.

Last night, the SEC announced it is rejecting Grayscale’s most recent filing. According to the SEC’s filing, it rejected the application for failing to include a plan for curtailing market manipulation.

In response to the rejection, Grayscale is suing the SEC. In the weeks leading up to this news, investors had been expecting Grayscale to take legal action in the event of another rejection. The company even hired Donald Verrilli as its legal counsel. Verrilli served as a U.S. solicitor general under the Obama administration.

In response to the rejection, Verrilli released a statement suggesting Grayscale’s course of action. Verrilli accuses the SEC of “failing to apply consistent treatment to similar investment vehicles,” adding that the body is acting “arbitrarily” and in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.

The suit will be taken up with the U.S. Court of Appeals in D.C. If successful, Grayscale’s $13.5 billion Bitcoin stash can be made into the nation’s first Bitcoin spot ETF — setting a precedent for other companies to roll out their own spot ETFs.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Brenden Rearick is a Financial News Writer for InvestorPlace’s Today’s Market team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.

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