The appeals court said the SEC’s decision to reject the Grayscale Bitcoin ETF application was “arbitrary and capricious” in its ruling.
Crypto asset manager Grayscale Investments has scored a major victory against the United States Securities and Exchange Commission in its efforts to convert its over-the-counter Grayscale Bitcoin Trust (GBTC) into a listed Bitcoin (BTC) exchange-traded fund (ETF). Previously, the SEC rejected its GBTC application on grounds that the products were not “designed to prevent fraudulent and manipulative acts and practices.” Grayscale subsequently sued, and the decision has been overturned.
According to Aug. 29 court filings, U.S. Court of Appeals Circuit Judge Neomi Rao ordered Grayscale’s petition for review be granted and the SEC’s order to deny the GBTC listing application be vacated. Previously, Judge Rao said that the SEC did not “offer any explanation” as to why Grayscale was in the wrong. However, the order does not guarantee the eventual listing of a Grayscale spot Bitcoin ETF.
Michael Sonnenshein, CEO of Grayscale, said on X (formerly Twitter) that its legal team is “actively reviewing” the court opinion.
🚨 JUST IN 🚨
The D.C. Circuit ruled in favor of @Grayscale in our lawsuit challenging the SEC's decision to deny $GBTC's conversion to an ETF!
Thank you to everyone who has been on this journey with us, especially our investors. We are grateful for your support and…
— Sonnenshein (@Sonnenshein) August 29, 2023
On June 29, 2022, the SEC denied Grayscale’s application to convert GBTC into a spot ETF. The next day, Grayscale’s senior legal strategist, former U.S. Solicitor General Donald B. Verrilli Jr., filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit. At the time, Sonnenshein said in a statement the firm was “deeply disappointed” and “vehemently disagreed” with the SEC’s decision to deny its application.
Grayscale Bitcoin Trust is the largest Bitcoin fund traded over-the-counter, with over $14 billion in assets under management. Earlier this year, shares of GBTC traded at a discount of nearly 50% to the net asset value due to the firm’s then ongoing litigation with the SEC and credit concerns regarding its parent, Digital Currency Group (DCG).
In October 2022, Grayscale terminated material agreements with its partner and digital currency broker Genesis Global. On Nov. 16, 2022, Genesis Global paused withdrawals, citing unprecedented market turmoil amid the collapse of cryptocurrency exchange FTX. The firm was also impacted by the collapse of Singaporean crypto hedge fund Three Arrows Capital, with a $1.2 billion debt owed to Genesis still unpaid.
In January 2023, it was disclosed that DCG owes creditors over $3 billion and is considering a $500 million venture capital portfolio sale. Genesis Global owes $900 million alone to users of cryptocurrency exchange Gemini’s Earn program.