Grayscale sues SEC after its bid for a spot bitcoin ETF is rejected

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Grayscale Investments sued the US Securities and Exchange Commission on Wednesday, shortly after the regulator rejected its bid to list the first spot bitcoin exchange-traded fund.

The SEC has denied a number of proposed spot bitcoin ETFs in recent years, and in its decision Wednesday said Grayscale had not demonstrated that its proposal met standards to prevent fraud and “manipulative acts and practices.”

“We are deeply disappointed by and do not agree with its decision,” Grayscale said in a statement, calling the SEC’s rulings “arbitrary and capricious.”

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“The SEC is failing to apply consistent treatment to bitcoin investment vehicles as evidenced by its denial of GBTC’s application for conversion to a spot ETF, but approval of several bitcoin futures ETFs,” Grayscale said. “If regulators are comfortable with ETFs that hold derivatives of a given asset, they should logically be comfortable with ETFs that hold that same asset.”

Grayscale later Wednesday filed a lawsuit with the US Court of Appeals in Washington, DC to review the SEC’s order, claiming the regulator violated the Administrative Procedure Act and Securities Exchange Act.

“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,” Grayscale said in a statement.

Grayscale is one of the world’s largest managers of digital currencies, and had filed earlier this month to allow its nearly $20 billion Bitcoin Trust fund to be converted to an ETF that would be traded on the NYSE Arca exchange. Regulatory approval of a spot ETF would be seen as a major milestone for wider crypto adoption, and potentially increase liquidity for the broader crypto market.

Grayscale is a unit of Digital Currency Group, which also owns CoinDesk.

The price of bitcoin BTCUSD, -0.64%,
the world’s largest cryptocurrency, slipped further Wednesday, briefly dipping below the $20,000 level, according to Coindesk data, roughly 70% off its peak in November.

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