US Regulator Sued by Grayscale After Latest Bitcoin ETF Rejection

Historically, the Grayscale Bitcoin Trust (GBTC) was the primary vehicle for US institutional exposure to bitcoin. As jurisdictions including Australia and Canada approved spot bitcoin exchange-traded funds (ETFs), the Securities and Exchange Commission (SEC) resisted. Once again, it has rejected appeals to approve a bitcoin ETF, and this time it is getting sued:

Our team has filed a Petition for Review with the D.C. Circuit Court of Appeals. This document officially initiates a lawsuit contesting the SEC’s decision.

— Grayscale (@Grayscale) June 30, 2022

Grayscale Committed to a Spot Bitcoin ETF

As news broke that the SEC had rejected its application to convert GBTC into an ETF, Grayscale moved swiftly to file a petition for review with the US Court of Appeals for the District of Columbia Circuit.

Speaking on CNBC’s Squawk Box, chief executive Michael Sonnenshein commented that Grayscale was “of course very disappointed, but as an organisation [we] were ready”. He added that the firm “almost immediately” filed a petition for review as it “vehemently disagreed with the decision”.

When asked for the basis for Grayscale’s legal challenge, Sonnenshein responded:

Nonetheless, Grayscale has said that it remains “committed” to converting the GBTC into an ETF, adding that:

Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the US regulatory perimeter. We will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles.

Grayscale press release

‘Poked the Wrong Nest’

In a rare display of unity between Bitcoiners and the crypto community, both sides agreed that pushback was needed against the SEC’s decision, with on-chain analyst Will Clemente saying:

This Grayscale lawsuit against the SEC is the first time I’ve seen unity on this app in a long time lol

Poked the wrong nest

— Will (@WClementeIII) June 30, 2022

Others commented that the SEC’s decision “lacked substance” or “common sense”:

The SEC has denied Grayscale's proposal to convert GBTC to an ETF.

Deeply disappointing. The point of the SEC is to protect investors & an ETF is unquestionably a better product for them.

This decision defies both common sense & federal law. I hope it goes quickly to court.

— Jake Chervinsky (@jchervinsky) June 30, 2022

Tellingly, during Grayscale’s 240-day review, a record-breaking 11,400 submissions were received with over 99 percent demonstrating support for the conversion.

Even though a final decision is only likely to be reached within the next 12 months, it appears as if the SEC may well have poked the wrong nest. Bitcoiners, in particular, have a tendency to make their voices heard.