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GBTC's conversion to a spot ETF rejected again! Grayscale files lawsuit against SEC, submits application for reconsideration

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The asset management firm Grayscale has had its $13.5 billion Grayscale Bitcoin Trust (GBTC) conversion application to a spot Bitcoin ETF officially rejected by the SEC on the 29th. This outcome has left Grayscale disappointed, leading them to file a lawsuit against the SEC.

GBTC Application for Spot ETF Denied by SEC

According to the document from the SEC, Grayscale filed for the conversion of GBTC under the Securities Exchange Act of 1934. In early April this year, the SEC approved a Bitcoin futures ETF issued by Teucrium based on this law. Therefore, Grayscale believed that the SEC could not block its spot ETF under the Investment Company Act of 1940.

However, the SEC stated that Grayscale did not meet the requirements of Section 6b5 of the Securities Exchange Act to prevent fraud and manipulation and protect investors and the public interest. The SEC believes that exchanges must enter into surveillance-sharing agreements with regulated and scaled markets to effectively detect and prevent malicious activities in the market.

However, this reasoning left Grayscale dissatisfied, stating:

"If regulators are satisfied with ETFs for specific asset derivatives, they should logically be satisfied with ETFs for the same assets."

In addition to Grayscale, the SEC also rejected Bitwise's application for a Bitcoin spot ETF on the same day.

Grayscale Takes Legal Action Against SEC

Disappointed by the outcome, Grayscale has decided to pursue legal action. The company has enlisted its senior legal strategist and former U.S. Attorney General, Donald B. Verrilli, to file a petition for review with the court as the first step in the litigation process.

"The SEC's failure to treat similar investment tools consistently, with arbitrary and capricious behavior, violates the Administrative Procedure Act of 1934 and the Securities Exchange Act," said Donald B. Verrilli.

According to data from Ycharts here, GBTC currently has a negative premium of about 29%, showing a continuous downward trend. If GBTC can eventually convert to a spot Bitcoin ETF, it could release approximately $8 billion in investor capital.