It’s not an unusual time when the Securities & Exchange Commission (SEC) decides to take a crypto project to court. It is, however, quite a surprise to see a crypto company charging headfirst at the government body. Grayscale, a crypto asset management company, is doing just that this month. The lawsuit news follows an initial filing from back in June, which the company made when the SEC rejected its spot Bitcoin (BTC-USD) exchange-traded fund (ETF).
Grayscale is one of the older crypto-specific asset management institutions, established in 2013 by Digital Currency Group. The company holds a total of 26 different cryptocurrencies in its portfolios, and as of the end of 2021, it held well over $40 billion in assets. It is best known for its Bitcoin Trust product, which holds more than $12 billion in Bitcoin.
However, that’s not where the company wants to rest its laurels. For years now, it has been attempting to turn this Bitcoin Trust into a full-on spot Bitcoin ETF. Though, it has been having some serious troubles with regulators in doing so.
Multiple times, the SEC has rejected the company’s attempts to bring about the first U.S. spot crypto ETF. Every time, the government agency gives similar reasoning. It is highly concerned by the alleged presence of market manipulation among crypto companies. This is the reason it struck down both Grayscale’s and Bitwise’s spot Bitcoin ETFs in late July. Even this week, the SEC denied WisdomTree’s spot ETF for the same reason.
At the time of the last rejection, Grayscale was very openly preparing to take legal action against the SEC in the event that it was not approved. It even brought on former Solicitor General Donald B. Verrilli Jr. to its legal team. After the rejection notice, it promptly filed suit. And now, this legal battle is getting on the road.
Grayscale Makes Opening Remarks in Lawsuit Against SEC
It’s the beginning of both a very busy and very consequential period for Grayscale. The company is putting the SEC on the ropes and leading a charge that could help the whole industry if successful. This week, the company and its legal team are speaking up for the first time in court with their opening remarks.
“Arbitrary, capricious and discriminatory.” That’s how the company describe the SEC’s decision to deny its spot Bitcoin ETF once again back in June. These comments come from Grayscale’s opening legal brief in the case, filed Tuesday in the D.C. Court of Appeals.
Grayscale argues the SEC has no justification for denying its spot Bitcoin ETF, especially when it is approving many future Bitcoin ETFs. This alleged discriminatory picking and choosing is what Grayscale describes as acting “in excess of statutory authority.”
The SEC does have its reasons for approving futures ETFs and not spot ETFs, largely related to how futures ETFs better protect investors. The agency asserts that futures ETFs are protected enough against market manipulation to allow them to trade. Spot ETFs, trading on the real-time going rate of Bitcoin prices, are much more susceptible to this manipulation.
Regardless of who is right or wrong, the suit will be a major influence on the future of crypto’s growth. If Grayscale were to have the SEC’s ruling overturned, it would set a precedent in which the SEC will have to approve all of those other ETFs it rejected for the same reasons. Crypto investors will be glad to see Grayscale coming out swinging. Now, the SEC has until Nov. 9 to respond to the filing.
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 InvestorPlace.com Publishing Guidelines.
