According to reports, the US SEC has disapproved Grayscale’s spot ETF application. Grayscale initially asked the watchdog to convert its Grayscale BTC Trust to a spot BTC ETF.
Following the news, Grayscale Investments submitted a petition challenging the commission’s verdict. However, this petition might last till 2024 before it is resolved.
SEC Rejects Grayscale’s Spot ETF
According to the SEC, Grayscale’s application did not make provision to prevent fraud. Also, it did not say how it would protect investors’ funds.
Grayscale, a crypto investment firm, had applied for the conversion to spot ETF in 2021. The firm even solicited the option of the public for the next step regarding its ETF application.
The security agency had until the 6th of July to decide on Grayscale’s application. This was after the agency had delayed its verdict since last year.
Earlier this week, the watchdog had rejected another spot BTC ETF application. Bitwise had submitted a spot BTC ETF to the commission.
Some months back, the agency had rejected the spot ETF application of OneRiver. The commission cited investor protection and market manipulation as reasons.
The issue of the SEC rejecting spot ETFs has been a major debate. Several market participants believe the agency’s reasons are not enough.
Besides, it is noteworthy to say the watchdog has approved several futures-based ETFs. This is because the SEC Act of 1934 prefers future ETFs over spots.
Hence, Grayscale finds it hard to understand why the Act would reject spot ETF applications. As a result, it has chosen to take the matter to court.
Grayscale Files Lawsuit Against SEC Following ETF Rejection
After Grayscale submitted its spot ETF application, it threatened to sue the agency if it rejected its application. The US SEC is well known for rejecting ETF applications from various firms.
However, after the agency rejected Grayscale’s application, the company submitted a lawsuit immediately.
Donald B. Verrilli, Jr., a senior legal strategist for Grayscale and past US Solicitor General filed the petition. While speaking about the recent petition, the CEO of Grayscale, Michael Sonnenshein, noted that:
“Grayscale is fully in support of SEC’s decision to protect rights and funds of investors. It also understands that the agency has to maintain efficient, fair, and orderly capital formation. However, we disagree with its decision to deny application for spot BTC ETFs.”
Meanwhile, a court ruling for the petition is on the way. The meeting may take place between Q3 2023 and Q1 2024. The case could also get to the US Supreme Court, depending on the outcome.
This would cause waves across national headlines. Unfortunately, this would delay Grayscale spot ETF conversion by another two years.