SEC Submits First Legal Brief In Ongoing War With Grayscale
- The Securities and Exchange Commission (SEC) has submitted its first legal brief after Grayscale submitted its first one in the month of October.
- The regulator said that its rejection of Grayscale’s request was “reasonable, reasonably explained, supported by substantial evidence.”
- Grayscale filed for the conversion of its flagship product, GBTC, into a Bitcoin spot ETF in 2021 but the request was turned down by SEC.
- The asset manager stated that the regulator failed to abide by the Administrative Procedure Act and Securities Exchange Act of 1934.
The crypto sector has been waiting for the approval of a Bitcoin (BTC) spot exchange-traded fund or ETF for quite some time, and almost every major crypto asset manager has filed for the same with the United States securities market regulator, the Securities and Exchange Commission (SEC). However, all such requests have been turned down by the regulator.
Grayscale, an American digital currency asset management company founded in 2013, filed for the conversion of its flagship product, GBTC, into a Bitcoin spot ETF. However, the SEC rejected the application just like it rejected requests from Bitwise, WisdomTree, and other major asset management firms that filed for approval.
Following the rejection of Grayscale’s Bitcoin spot ETF, the asset management firm filed lawsuit against the SEC stating that the regulator has been unfair in its decision. Therefore, amid the war brewing between the two entities, the agency has submitted its first legal brief after Grayscale submitted its first one in the month of October.
The legal brief lasts over 73 pages wherein SEC stated that its rejection of Grayscale’s request for the conversion of its Grayscale Bitcoin Trust (GBTC) to a Bitcoin spot ETF was “reasonable, reasonably explained, supported by substantial evidence.”
“Grayscale elides this distinction, making a series of arguments with respect to the risk of fraud in the assets underlying the two types of products. But those arguments fail to grapple with the Commission’s core conclusion that the fundamental differences in the ability to detect and deter fraud and manipulation reasonably support treating the two products differently,” said SEC in its brief.
Grayscale claims that the SEC has successfully approved a few Bitcoin futures ETF along with a Bitcoin short ETF and a mutual fund as well. However, the regulator has yet to approve a spot ETF which seems “unreasonable” to the asset manager.
On the other hand, the SEC argues that for any such product to be approved, the applicant must present means to “detect and deter fraud and manipulation of the assets underlying that type of product.” In case of Bitcoin’s spot value, this becomes very hard since cryptocurrencies are one of the most volatile asset classes among all. The regulator also noted in the brief that “Bitcoin markets are rapidly evolving, and the situation facing regulators is dynamic.”
Interestingly, Grayscale noted that the response brief from SEC displays the regulator’s efforts of “creating an uneven playing field for investors by approving Bitcoin futures-based ETFs, while continuously denying spot Bitcoin ETFs.” The asset manager believes that “spot Bitcoin ETFs do not present meaningfully different risks of fraud and manipulation,” countering the regulator’s argument.
“In approving Bitcoin futures-based ETFs but not spot Bitcoin ETFs, the SEC has failed to abide by the Administrative Procedure Act (APA) and Securities Exchange Act of 1934 (Exchange Act),” claims Grayscale.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
