Grayscale Blasts SEC’s ‘Illogical’ Denial of GBTC Conversion

Final briefs in the case are due Feb. 3, as Grayscale’s suit against the SEC in the DC Circuit Court of Appeals moves forward


Ascannio/ modified by Blockworks


Grayscale Investments’ lawsuit against the SEC took another step forward Friday as the cryptoasset manager called out the regulator for “illogical” reasoning.

The company sued the SEC in June after it chose to block the Grayscale Bitcoin Trust (GBTC) from becoming an ETF.

Grayscale’s latest brief, filed Friday in the US Court of Appeals for the District of Columbia Circuit, was a response to the SEC’s filing submitted last month. 

The issue at hand, Grayscale has said, is that the SEC’s approval of ETFs that invest in CME-traded bitcoin futures, but not for exchange-traded products (ETPs) that invest in bitcoin directly — such as GBTC — is discriminatory. The firm claims the regulator is violating the Administrative Procedure Act and The Securities Exchange Act of 1934.

In the SEC’s December filing for the Grayscale case, the regulator said bitcoin futures funds and spot bitcoin funds “are not the same” adding they have “fundamental differences in the ability to detect and deter fraud and manipulation.”  

In Friday’s brief, Grayscale lawyers criticized the regulator’s “scant rebuttal,” noting that fraud or manipulation in the bitcoin spot market would affect the price of bitcoin futures. 

The US bitcoin futures ETF holding CME futures contracts relies on the Bitcoin Reference Rate — the same spot prices as GBTC, it adds.

“The commission’s brief never comes to terms with the order’s arbitrary premise and the discriminatory result it has produced,” Grayscale lawyers wrote in the brief. “Instead, the commission goes on for page after obfuscatory page pointing out differences between the spot bitcoin and bitcoin futures markets that have no bearing on the issue before this court.”

An SEC spokesperson did not immediately return a request for comment.

Final briefs are due Feb. 3 and oral arguments are set to be scheduled after judges for the case are selected.

Grayscale’s Chief Legal Officer Craig Salm said in a Friday blog post that the court could reach a decision by the fall. 

“In times like these, when a significant amount of trust and confidence in the crypto ecosystem has been damaged, regulated access to the asset class is more important than ever,” he added.

Trust under scrutiny

GBTC, which launched in 2013 and holds $12 billion in assets, has not allowed redemptions for years. 

The trust has been trading at a nearly 40% discount to its net asset value this week, according to 

The company has said converting GBTC to an ETF would offer the regulatory relief for the product to simultaneously create and redeem shares, essentially getting rid of premiums and discounts. 

Grayscale has faced public pressure of late. Valkyrie Investments proposed taking over GBTC and an online campaign seeks to offer investors “a credible path to redemptions.”

Hedge fund firm Fir Tree Partners launched a lawsuit last month alleging “mismanagement” of GBTC and seeking more information into the trust’s inner workings. The complaint also calls Grayscale’s attempt to convert GBTC to an ETF “wasteful.”

Grayscale called the suit “baseless” in a statement last week and said it would seek to clarify “numerous mischaracterizations” in the Delaware Court of Chancery.

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