World’s Largest Bitcoin Fund Sues SEC Over Crypto ETF Rejection

Digital currency asset manager Grayscale is in a legal battle with the U.S. Securities and Exchange Commission over its latest rejection of the company’s future Bitcoin cash exchange-traded fund.

Last Wednesday, the SEC denied Grayscale’s request to convert its bitcoin trust into a cash ETF. The company filed a complaint the same day.

Grayscale Bitcoin Trust, ticker GBTC, is the largest publicly traded bitcoin fund in the world.

“We were just asking the SEC to hold this product to a higher standard, give it greater investor protection and greater investor risk disclosure,” Grayscale CEO Michael Sonnenshein said at ” ETF Edge” from CNBC on Wednesday of this week. “The conversion would unlock billions of dollars of unrealized value for shareholders.”

He identified potentially capricious treatment by the SEC, which allows bitcoin futures products to trade under specific rules and regulations, but denies spot products a level playing field.

“The inconsistent treatment here by the SEC — allowing futures products to trade but denying cash products to trade — doesn’t look at what is essentially the exact same market through a similar lens here,” Sonnenshein said. “In fact, the treatment is quite disparate.”

Todd Rosenbluth of VettaFi, a financial services firm, joined the conversation to share his thoughts on what could change the SEC’s outlook. The commission made a distinction between futures and spot products, citing regulations related to ETFs based on bitcoin futures.

“I wish Michel [Sonnenshein] good luck in the lawsuit, but it’s hard to convince the SEC that there won’t be fraud and manipulation when that’s what they’re clearly asking asset managers to refute time and time again,” VettaFi’s head of research said.

According to Sonnenshein, markets in Canada, Brazil and parts of Europe are promising for spot Bitcoin ETFs. Rather than immediately bringing the future ETF to international markets, Grayscale’s CEO hopes to fix cryptocurrency regulation domestically.

“What we are going to see, and what we intend to see, is to work proactively with the SEC and other regulators here in the United States to really respond to this Executive Order from the White House beginning of this year to engage on crypto issues and ultimately develop frameworks that create cohesive treatment and develop frameworks that can actually allow companies to grow and not waste innovation here at United States when it comes to crypto,” Sonnenshein said.

Grayscale Bitcoin Trust was trading higher on Thursday. However, it has fallen by more than 50% in the past 52 weeks.

The SEC declined to provide comment beyond its order denying Grayscale’s request.

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