The Securities and Exchange Commission (SEC) rejected Grayscale’s application to convert its trust fund and spot ETFs. They cited several laws from 1933 and 1940, saying such a market is vulnerable to manipulation.
The commission rejected a similar request from Ark 21Shares in April and a VanEck proposal last November.
Experts believe that until bitcoin funds provide more transparency in pricing, custody and liquidity, SEC Chairman Gensler is unlikely to change his mind.
Lawsuit against the SEC
In response, Grayscale is not giving up. They are preparing a lawsuit to challenge the regulator’s decision. The fund has a team of experienced lawyers, including Davis Polk & Wardwell attorneys and former Obama administration consultant Donald B. Verrilli.
Nearly 11,500 organizations, including investors and industry associations, supported the idea with the fund. They submitted letters to the SEC on behalf of Grayscale in support of the project. Strategic partners BNY Mellon and EY were willing to work on transforming the Bitcoin Trust into a spot ETF.
Lawyers in their lawsuit are appealing that the SEC is violating the 1934 Securities Market Freedom Act.
The first spot bitcoin-ETF would provide more opportunities for U.S. investors. It is a well-tested asset-trading tool and could be used by companies and private investors.