Crypto asset manager Grayscale Investments has won a pivotal lawsuit against the United States Securities and Exchange Commission (SEC), regarding its efforts to convert its over-the-counter Grayscale Bitcoin Trust (GBTC) into a Bitcoin exchange-traded fund (ETF). The SEC had initially rejected Grayscale’s application, citing insufficient safeguards against “fraudulent and manipulative acts and practices.” Grayscale then took legal action, and the court has now ruled in its favor.
According to recent court documents, the U.S. Court of Appeals overturned the SEC’s decision, describing it as “arbitrary and capricious.” Circuit Judge Neomi Rao noted that the SEC failed to provide a clear rationale for its denial of Grayscale’s application. While the court’s decision doesn’t guarantee a future listing of a Grayscale Bitcoin ETF, it does give the firm an opportunity to have its application reconsidered.
Michael Sonnenshein, the CEO of Grayscale, announced that the company’s legal team is “actively reviewing” the court’s opinion. The legal battle began when the SEC denied Grayscale’s initial application on June 29, 2022. The very next day, the firm filed a petition for review, expressing deep disappointment and vehement disagreement with the SEC’s decision.
Grayscale Bitcoin Trust is the largest Bitcoin fund traded over-the-counter and currently manages over $14 billion in assets. Shares of GBTC had been trading at nearly a 50% discount to their net asset value, largely due to ongoing litigation with the SEC and credit issues concerning its parent company, Digital Currency Group (DCG).
This legal win comes amid turbulent times for Grayscale and its associates. In late 2022, Grayscale severed ties with its digital currency broker Genesis Global, which later paused withdrawals amid a market meltdown following the collapse of cryptocurrency exchange FTX. DCG, the parent company, also has its financial struggles, owing creditors over $3 billion and considering a $500 million venture capital portfolio sale.
The court ruling marks a potential turning point for Grayscale and could have wider implications for the acceptance and regulation of Bitcoin ETFs in the United States.
