After regulators rejected its request to transform the investment vehicle into an exchange-traded fund, Grayscale, which oversees the largest bitcoin fund in the world, declared that it will file a lawsuit against the U.S. Securities and Exchange Commission.
The SEC rejected Grayscale's request for a spot bitcoin exchange-traded fund on Wednesday, citing the investment manager's refusal to provide information regarding worries about market manipulation.
The watchdog is concerned that the Grayscale proposal will not provide investors with adequate protections.
In October 2021, Grayscale sought to have its Bitcoin Trust, or GBTC, become an ETF, but the decision was repeatedly postponed. Grayscale has increased pressure on the watchdog to support it, including by providing a means for people to immediately email in their support.
Grayscale promptly appealed the SEC's decision to the U.S. Court of Appeals for the District of Columbia Circuit in a petition. Donald B. Verrilli Jr., a former solicitor general of the United States, is Grayscale's chief legal strategist, and he is leading a group of lawyers from Davis Polk & Wardwell in this case.
Verrilli claimed that the SEC is "acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934" by "failing to apply consistent treatment to identical investment vehicles."
A comment from the SEC was not immediately available outside of regular U.S. business hours.
In light of prior decisions to approve other bitcoin-based ETFs, such as those based on futures markets and one that enables investors to short — or bet against — the cryptocurrency, Grayscale claims the SEC's approach is inconsistent.
The SEC's approval of the first U.S. spot bitcoin ETF, a step that would make cryptocurrencies more accessible to institutional investors, was what the cryptocurrency bulls had been banking on.
The decision to reject Grayscale's proposal for a bitcoin ETF adds to a string of unfavorable recent headlines about cryptocurrencies. Three Arrows Capital, a troubled cryptocurrency hedge firm, went out of business earlier this week.
Late on Wednesday, Bitcoin was trading at $20,085, down 1% from the previous day. Since the bubble's peak in November 2021, the combined market value of cryptocurrencies has decreased by $2 trillion.