Digital currency asset manager Grayscale is in a legal fight with the U.S. Securities and Exchange Commission over its latest rejection of the company’s prospective spot bitcoin exchange-traded fund.
Last Wednesday, the SEC denied Grayscale’s application to convert its bitcoin trust to a spot ETF. The company filed a lawsuit the same day.
Grayscale Bitcoin Trust, under the ticker GBTC, is the world’s biggest publicly traded bitcoin fund.
“We were simply asking the SEC to hold this product to a higher standard, to give it greater investor protection and give greater risk disclosure for investors,” Grayscale CEO Michael Sonnenshein told CNBC’s “ETF Edge” on Wednesday of this week. “Converting would unlock billions of dollars of unrealized shareholder value.”
He identified potentially capricious treatment by the SEC, which allows bitcoin futures products to trade under specific rules and regulations but denies spot products an equal opportunity.
“The inconsistent treatment here by the SEC — allowing the futures products to trade but denying the spot products to trade — is not looking at what is essentially the same exact market through a like lens here,” Sonnenshein said. “In fact, the treatment is quite disparate.”
Todd Rosenbluth of VettaFi, a financial services company, joined the conversation to share his thoughts on what could change the SEC perspective. The commission made a distinction between futures- and spot-based products, citing the regulations tied to bitcoin futures-based ETFs.
“I wish Michael [Sonnenshein] best of luck in the lawsuit, but it’s hard to convince the SEC that there isn’t going to be fraud and manipulation when that’s what they’re clearly asking the asset managers to disprove time and time again,” VettaFi’s head of research said.
Markets in Canada, Brazil and parts of Europe show promise for spot bitcoin ETFs, according to Sonnenshein. Rather than bring the prospective ETF to international markets right away, the Grayscale CEO hopes to repair 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 U.S. to really answer that White House executive order from earlier this year to engage on crypto issues and ultimately develop regulatory frameworks that create consistent treatment and develop frameworks that can actually allow businesses to grow and not squander innovation here in the U.S. as it relates to crypto,” Sonnenshein said.
Grayscale Bitcoin Trust was trading higher Thursday. However, it’s down more than 50% over the past 52 weeks.
The SEC declined to provide comment beyond its order denying Grayscale’s application.