Grayscale sues SEC on refusal to turn bitcoin fund into ETF

Grayscale sues SEC on refusal to turn bitcoin fund into ETF

The Commission had ruled that the company's proposal did not meet the standard

The Securities and Exchange Commission is facing a new lawsuit in the federal court after the agency denied an application to create an exchange-traded fund (ETF) that would let investors bet on bitcoin via the stock market.

The rejection came despite a campaign by the digital asset management firm Grayscale that enlisted support from market luminaries and generated more than 11,000 comment letters.

A 'spot' ETF that invests in bitcoin has long been a goal for the cryptocurrency industry. The SEC had earlier rejected several attempts by many, including the Winklevoss brothers.

Since 2013, Grayscale has run a bitcoin trust that lets investors trade shares in crypto that it holds. But the trust has limitations like high fees and no redemption mechanism, it has been trading at a discount to the price of bitcoin.

Meanwhile, Grayscale argued that converting its trust into an ETF would "unlock billions of dollars of investor capital while bringing the world's largest bitcoin fund further into the US regulatory perimeter."

But SEC ruled that the company had not made its case because its proposal did not meet the standard. SEC said, "It must prevent fraudulent and manipulative acts and practices and protect investors and the public interest."

The agency showed concerns about the underlying crypto market that Grayscale could not assuage. Therefore, the firm promptly appealed in the federal court in an attempt to reverse the decision.

The company's senior legal strategist, Donald Verrilli Jr., a former US Solicitor General, said in a statement that regulators were acting "arbitrarily and capriciously."