GrayScale: SEC Again Rejects Our Application to Convert GBTC to a Spot ETF

GrayScale: SEC Again Rejects Our Application to Convert GBTC to a Spot ETF
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The SEC has again rejected Grayscale’s application in order to convert GBTC into a spot ETF. Grayscale does not agree with this decision, and the company is figuring out how to handle this. GrayScale, according to the announcement, is deeply disappointed with the decision and disagrees with its logic.

By converting GBTC to a spot Bitcoin ETF, the world’s largest Bitcoin fund would have been brought closer to the U.S. regulatory perimeter while also making Bitcoin more accessible for U.S. investors using the familiar protections offered by an ETF.

What Will Happen Next?

GBTC shares are valued at approximately 30% under the NAV of the company, representing approximately $8 billion of unrealized shareholder value as of June 29, 2022. The Grayscale team believes that the best option available to investors is to convert GBTC into a Bitcoin ETF that tracks the spot price of Bitcoin. As a result, the discount would be effectively eliminated, and the shares would track the price of Bitcoin, effectively eliminating the discount.

As reflected in the announcement, the SEC has criticized the decision of the commissioners and believes that the organization is not treating Bitcoin investment vehicles consistently, and this is demonstrated by its denial of GBTC’s application for conversion to a spot ETF while multiple Bitcoin futures ETFs were approved.

A regulator should be comfortable holding ETFs which hold derivative instruments of an asset, such as a fixed income strategy since they are comfortable with derivative instruments that hold the same asset.

The company believes in the best interest of GBTC and the investors, it is in the best interest to take this matter to court since the SEC’s arbitrary and capricious actions and discriminatory treatment of issuers must be adjudicated. 

The announcement says:

“At Grayscale, we have not and will not waiver in our commitment to converting GBTC to a spot Bitcoin ETF. The decision to pursue litigation is not one we take lightly, but we are confident in our legal team, as well as our compelling, common-sense legal arguments. Our in-house counsel will work closely with Mr. Verrilli and the team at Davis Polk to make these arguments over the coming months.”

As part of the litigation process, GrayScale’s Senior Legal Strategist and Former U.S. Solicitor General, Donald B Verrilli, Jr, has filed a petition for review before the United States Court of Appeals for the D.C. Circuit, which is the first step in bringing a lawsuit against the American government.

After months of efforts from GrayScale for encouraging SEC to accept the application, even with community support, The recent news is very disappointing. But it seems they have big plans for continuing the application. We should wait and see if anything changes on the SEC side.


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