Grayscale Spot Bitcoin ETF Rejected by SEC, Provoking Lawsuit


By rejecting a highly anticipated exchange-traded fund from the largest digital asset manager in the world, the SEC has reiterated its anti-crypto position.

The application by Grayscale to list a spot Bitcoin exchange-traded fund (ETF) on the NYSE Arca platform was denied on June 29 by the US securities authority.

The SEC claims that the plan did not adhere to regulations intended to stop dishonest and deceptive market activities. According to the statement, the decision to reject Bitcoin and blockchain technology in general was not motivated by an evaluation of their potential as investments or sources of innovation.

The Commission researched and compiled a list of potential fraud and market manipulation sources. Among them were “manipulative conduct with alleged “stablecoins,” like Tether,” wash trading, whale manipulation, exchange and network hacking, propagation of false information, and fraud.

Legal Challenge in Grayscale
On June 30, Grayscale CEO Michael Sonnenshein retaliated with a legal protest. The SEC is accused of breaking both the Securities Exchange Act and the Administrative Procedure Act, according to the lawsuit. It read:

Grayscale questioned why regulators feel comfortable with ETFs that hold derivatives of one asset but not with funds that own the same asset in a statement on the action.

According to Sonnenshein, the company thinks that the majority of American investors expressed a desire for GBTC, Grayscale’s flagship Bitcoin fund, to become a spot Bitcoin ETF. According to Ycharts, the GBTC fund is presently trading at a discount or negative premium of -29 percent.

Throughout the 240-day evaluation period, Grayscale started a commenting campaign. Over 11,400 submissions were made, setting a new record, and more than 99 percent of them backed the fund conversion.

“We absolutely disagree with the SEC’s decision to continue to forbid spot Bitcoin ETFs from entering the U.S. market,” he continued.

The argument is predicated on the idea that the SEC has already authorized Bitcoin ETFs with a similar structure, which are still reliant on the asset’s current price.

Long-Running Affair
James Seyffart of Bloomberg tweeted a probable timetable of what would happen after the case, which might take many years to resolve.
At the time of writing, the price of one bitcoin has fallen to $20,085 after falling another 1.2 percent on the day.