Takeaways
- Valkyrie CEO says Grayscale’s lawsuit against SEC will not succeed
- Osprey Funds’ leader thinks a bitcoin spot ETF won’t be approved under Gary Gensler, SEC chair.
Grayscale Investments has begun drafting its first arguments to the SEC after the agency denied the company’s Bitcoin ETF proposal. However, some people are not convinced that the decision will eventually be reversed.
“Right now we’re just laser-focused on working with the court, setting up briefing schedules and going from there,” Grayscale’s chief legal officer Craig Salm tells Blockworks. “We think that we have very common-sense and compelling arguments here and we think the court will be able to see that as well.”
Grayscale, after SEC refused to convert its Bitcoin trust (GBTC) into an ETF on Wednesday night, filed a petition of review at the US Court of Appeals District of Columbia Circuit.
Salm confirmed that they expect to present written arguments within the next two months. Grayscale’s lawyers estimate the case could last between 9 and 12 months on appeal.
SEC: The SEC has acted, the company claims “arbitrarily and capriciously” Salm stated that the Administrative Procedures Act is applicable. He added that the agency is discriminating by not approving proposed spot-based Bitcoin products but instead approving ETFs based on bitcoin futures.
“Both types of ETFs are priced based on the underlying bitcoin markets, and so if you’re OK with one for an ETF, then you also should be OK with the other,” Salm spoke Friday. “They’re two like investment vehicles that are just being treated [differently] in this situation.”
Grayscale will win.
Dave Nadig from VettaFi’s financial futureist, Blockworks, said that Congress-approved SEC mandate allows the agency to be a futurist. “extremely clear authority” To regulate the rules governing securities exchange activities.
“I think it’s a very tough case for [Grayscale] to win,” “He said” “The SEC explicitly is allowed to approve and deny exchange rules based, essentially, on whatever they like.”
Nadig explained that the SEC, in order to find Grayscale in favor, would have to decide essentially that, since it allows derivatives, it has to also allow a focused product on the underlying asset.
“This seems pretty stretchy to me,” “He said” “By that logic, they’d have to allow all sorts of really unworkable products, like a physical oil product.”
Leah Wald of Valkyrie Funds said on Twitter Thursday in a series that it is unlikely that Grayscale will succeed with its lawsuit against the SEC. She noted that regulators may approve an ETF for spot bitcoin before Grayscale finishes their suit.
“Not many people expect this suit to go in favor of Grayscale and there isn’t much precedent for such an outcome to occur,” Wald Twitter “But in order to keep assets flowing in and ensure institutions remain engaged, this is the only real move they have left.”
This week, the SEC rejected Bitwise Asset Management’s application for a spot bitcoin ETF. San Francisco’s Bitwise Asset Management re-filed their proposal in October last year, adding roughly 150 pages devoted to research on the price discovery of crypto markets.
A spot Bitcoin ETF is not yet available in the US. Industry watchers say that it will be at least 2023 before one launches.
Greg King, the CEO of Osprey Funds and issuers of crypto funds, stated that the SEC’s decision on Grayscale’s application as well as Bitwise was what he had expected.
“We believe the SEC’s concerns around offshore trading of bitcoin have not been sufficiently addressed,” King told Blockworks by email. “This rejection confirms our belief that no spot bitcoin ETF will be approved in [SEC Chair Gary] Gensler’s administration.”
The current term of Gensler, which is five years long, expires 2026.
VanEck has submitted a second application for an ETF that tracks spot bitcoin. Its earlier application was rejected in November.
VanEck declined to make any comment about the complaint.
GBTC’s assets were about $12 billion on Friday. On Thursday, the investment vehicle traded at a discount of 31% to its Net Asset Value (NAV), which is about 2 percentage point more than it did the day prior to the SEC decision.
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