© Reuters. FILE PHOTO: Displays of the cryptocurrencies Bitcoin, Ethereum and Dash plunge into water in this illustration taken May 23, 2022. REUTERS/Dado Ruvic/Illustration
Author: Hannah Lang
(Reuters) – Crypto asset manager Grayscale Investments is preparing for a protracted legal battle with the U.S. Securities and Exchange Commission to create an exchange-traded spot bitcoin fund, the company’s chief executive said.
As the company awaits a court ruling on its June lawsuit against the SEC, CEO Michael Sonnenshein said he is prepared to appeal if the court upholds the SEC’s decision to reject the bitcoin ETF proposal.
“The only option the SEC left us with was to turn around and say, you know what, this is just not right,” Sonnenshein said. The lawsuit against the regulator was one of the most important decisions he made as CEO and was “one that I did not, and we as a team did not take lightly,” he said.
In June, the SEC rejected Grayscale’s request to convert its flagship Grayscale Trust (GBTC) into an ETF, arguing that the proposal did not meet standards designed to prevent fraudulent practices and protect investors.
Grayscale sued the SEC almost immediately after its proposal was rejected, arguing that the regulator acted arbitrarily by rejecting applications for spot bitcoin ETFs when it had previously approved bitcoin futures ETFs.
The case is pending before the District of Columbia Court of Appeals. If either party were to appeal the ruling, the case would go to the U.S. Supreme Court or to review by an en banc panel. Oral arguments in the case are scheduled for March 7, and Grayscale expects a final ruling on the case in the fall, Sonnenshein said.
The SEC did not immediately respond to a request for comment.
Grayscale Bitcoin Trust manages $14.5 billion in assets, according to Grayscale’s website. The GBTC discount to bitcoin hovers around 41%, which is under pressure after crypto exchange FTX collapsed and crypto lender Genesis suspended payouts.
There is further concern about contagion. Genesis and Grayscale are owned by venture capitalist Digital Currency Group (DCG), and questions about whether DCG will have to sell its GBTC holding also weighed on the discount.
Genesis’ crypto lending unit filed for bankruptcy on January 19.
Grayscale did not rely operationally on DCG or Genesis and was not affected by the bankruptcy, Sonnenshein said. Still, Genesis owned about 5% of GBTC’s total shares, according to a person familiar with the matter. Genesis did not immediately respond to a request for comment.
“Grayscale is an independent entity with its own leadership, management, budgets, policies and procedures, and the assets supporting the Grayscale family of products belong to its respective shareholders,” Sonnenshein said.
If its legal challenge to the SEC is unsuccessful, Grayscale will explore options to return some of GBTC’s capital to shareholders, Sonnenshein told investors in a December letter.