An investment company has made a claim to the Securities and Exchange Commission over cryptocurrencies. What’s the case?
Grayscale Investments, a major digital asset management company, has filed an opening statement with the US Court of Appeals for the District of Columbia Circuit in a court case against the US Securities and Exchange Commission (SEC). The company’s main claim is that the regulator is biased in accepting different types of exchange-traded funds (ETFs) on Bitcoin. By doing so, the company wants to ensure that Bitcoin ETFs are launched on a spot basis, i.e. at a market price. Previously, various agencies have banned the creation of such investment products. We tell you more about what is happening.
To recap, an exchange-traded fund (ETF) is an investment vehicle that bundles securities, allowing investors to buy shares in an ETF in the public market without having to directly own the underlying assets. In the case of a Bitcoin ETF, the underlying asset is either the cryptocurrency itself or derivatives based on it. Herein lies the main problem: Last year, the SEC approved the launch of a Bitcoin futures ETF, but all applications for a spot cryptocurrency exchange-traded fund have so far been rejected by the regulator.
At the same time, investment company executives do not understand such a position of the regulator and consider it to be biased. That is why in this case they have gone to court.
When will the Bitcoin spot ETF be launched?
In its application to the US Court of Appeals for the District of Columbia Circuit, the company argues that “a fundamental rule of administrative procedure requires the agency to treat similar cases the same way.” However, by approving Bitcoin futures exchange-traded products (ETPs) but repeatedly rejecting spot cryptocurrency ETFs, the financial regulator is acting “in excess of statutory authority”. Here’s a quote from Grayscale’s chief legal officer Craig Salm.
The Administrative Procedure Act and the Exchange Act require rules and regulations to be applied without bias to any particular type of investment instrument.
It should be noted that there are more than enough rejections of the launch of such an investment instrument. Therefore, representatives of blockchain companies simply do not understand how to get approval for a new product.
Important dates in the SEC and Grayscale litigation
According to Decrypt’s sources, Grayscale’s lawyers also pointed out in court documents that the complexity of the case should not depend on Bitcoin. The cryptocurrency is indeed a fundamentally new asset, but the problem is not with it – the problem is with the financial regulator, which is “discriminatory” in its treatment of individual requests.
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Several quotes about the court case have also been published on Grayscale’s official Twitter account. Here are the relevant lines about what’s going on.
The US Securities and Exchange Commission’s application of its “market test” is deeply flawed as it does not achieve the desired effect of protecting investors from potential fraud and manipulation in underlying BTC trading. Nor has the Commission adequately explained why its test should be considered the only correct one, let alone why it applies strictly to spot Bitcoin ETFs, but futures cryptocurrency ETFs are controlled more leniently.
Grayscale has long sought to convert the industry’s largest Bitcoin trust, GBTC, into a spot cryptocurrency ETF. As a reminder, GBTC is an investment product divided into 1,000 units. Each of those units roughly corresponds to 1/1000th of the market value of Bitcoin, meaning that the trust is relatively easy to convert immediately into a spot exchange-traded fund, and at the same time it allows large investors to get in touch with cryptocurrencies.
GBTC units exchange rate
In June this year, the US Securities and Exchange Commission rejected the company’s application for an ETF. At the time, regulator representatives said that Grayscale had allegedly not done enough to protect investors from “fraudulent and manipulative practices”.
The decision prompted the company’s management to sue the regulator, and its CEO Michael Sonnenschein said Grayscale would continue to use all available resources to protect its investors and “fairly regulate Bitcoin-based investment instruments.”
Grayscale CEO Michael Sonnenschein
The Commission has until November 9 to submit its statement to the court case, while Grayscale is expected to respond by November 30. Both sides will submit their final documents on the court case by December 21. This is probably the date that can be used as a benchmark for the progress of the proceedings.
We believe that such action by Grayscale Investments is correct. Obviously, the US Securities and Exchange Commission and other regulators cannot indefinitely reject the launch of new investment instruments by talking about insufficient customer protection. Therefore, you have to be more aggressive here, and Grayscale has clearly chosen to do just that. We want to believe that their endeavor will be successful, and investors all over the world will be able to connect with Bitcoin and other cryptocurrencies without too much trouble.
Stay tuned for more developments in our Millionaire Crypto Chat. There we will discuss other important developments in the world of blockchain and decentralization.
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