The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin ETF, citing the investment manager’s failure to respond to questions about concerns surrounding market manipulation.
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Grayscale, the world’s largest bitcoin fund manager, said it will sue the US Securities and Exchange Commission after regulators rejected an attempt to convert an investment vehicle into an exchange-traded fund.
The SEC on Wednesday denied Grayscale’s application for a spot bitcoin exchange-traded fund, citing the investment manager’s failure to respond to questions about concerns surrounding market manipulation.
The watchdog is concerned investors will lack adequate protections under the Grayscale proposal.
Grayscale filed to make Bitcoin Trust, known as GBTC, an ETF in October 2021, but the ruling has faced multiple delays. Grayscale has piled up pressure on the watchdog to go along with itincluding giving people a quick way to email to express their support.
Immediately after being rejected by the SEC, Grayscale filed an objection to the decision with the United States Court of Appeals for the District of Columbia Circuit. The litigation is being led by Grayscale senior legal strategist Donald B. Verrilli Jr., a former US attorney general, and a team of attorneys at the law firm Davis Polk & Wardwell.
Verrilli said the SEC is “not applying consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and in violation of the Administrative Procedures Act and the Securities Exchange Act of 1934. “
The SEC was not immediately available for comment outside of normal US business hours.
Grayscale argues that the SEC’s position is inconsistent based on previous decisions about green-lighting other bitcoin-based ETFs, including those based on futures markets and one that allows investors to invest to short – or bet against – cryptocurrencies.
Crypto bulls have pinned their hopes on SEC approval of the first US spot bitcoin ETFa move that has the potential to open up cryptocurrencies to more institutional investors.
Grayscale’s move to reject a bitcoin ETF application adds to the recent barrage of negative crypto news. Earlier this week, Three Arrows Capital-Participated Crypto Hedge Fund Collapses in Liquidation.
Bitcoin was trading at $20,085 late Wednesday, down 1% over the past 24 hours. Cryptocurrencies have lost a total of $2 trillion in market value since the top of the bubble in November 2021.