Digital currency asset manager Grayscale is embroiled in a legal battle with the U.S. Securities and Exchange Commission (SEC) over its latest rejection of the company’s future cash bitcoin-traded fund.
Last Wednesday, the SEC denied Grayscale’s request to convert its bitcoin trust into a spot ETF. The company filed a lawsuit the same day.
Grayscale Bitcoin Trust, under the 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 give them greater risk disclosure,” Grayscale CEO Michael Sonnenshein told Reuters. CNBC’s “ETF Edge” show on Wednesday of this week. “The conversion would unlock billions of dollars of unrealized shareholder value.”
He identified potentially wayward treatment from the SEC, which allows bitcoin futures products to trade under specific rules and regulations, but denies spot products an equal chance.
“The SEC’s inconsistent treatment — which allows trading in futures products but denies trading in cash products — makes it difficult to view what is essentially the exact same market through a similar lens,” 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 good luck to Michael [Sonnenshein] in its lawsuit, but it is difficult to convince the SEC that there will be no fraud and manipulation when that is what it clearly asks asset managers to refute time and time again,” said VettaFi’s Head of Research.
According to Sonnenshein, markets in Canada, Brazil and parts of Europe hold promise for bitcoin spot ETFs. Rather than immediately introducing the future ETF to international markets, Grayscale’s CEO hopes to fix cryptocurrency regulation domestically.
“What we’re going to see, and what we intend to see, is working proactively with the SEC and other regulators here in the United States to really respond to this executive order from the White House of beginning of the year to engage on crypto issues and ultimately develop regulatory frameworks that create cohesive treatment and develop frameworks that can actually allow companies to grow and not waste innovation here in the United States. United 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 comment beyond its order denying Grayscale’s request.
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