The Securities and Exchange Commission (SEC) has turned down Grayscale’s petition to transform its flagship product into a spot-bitcoin exchange-traded fund (ETF).
Previously, the SEC rejected One River’s carbon-neutral bitcoin ETF, voicing concerns about fraud.
The securities regulator issued a rejection order for the conversion of Grayscale’s Bitcoin Trust (GBTC) after multiple extensions on the application. The SEC has yet to authorise a spot-bitcoin ETF to list, while it green-lit many futures-based products.
In its rejection decision, the agency said:
“This order disapproves the proposed rule change, as modified by Amendment No. 1. The Commission concludes that NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), which requires, in relevant part, that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.”
For its part, issuer Grayscale has begun to fight back on this argument. It’s worth noting that Grayscale previously threatened to take legal action if the SEC rejected its Bitcoin ETF proposal.
In the aftermath of several spot ETF denials, it wrote a letter to the regulator showing its readiness to accept a futures product but disallowing spot offers might represent a breach of the Administrative Procedures Act. Because a futures product’s price is determined according to the underlying market, Grayscale and other proponents claim it’s illogical to prohibit a spot product based on inadequate safeguards against market manipulation when the permitted products are priced based on that underlying market.
In the lead-up to the decision, Grayscale prepared for approval via a contract with Jane Street and Virtu to close the discount of GBTC upon conversion. That agreement cannot proceed ahead without permission.
Meanwhile, Grayscale stated it was ready for all conceivable outcomes and had bolstered up its legal resources in the lead-up to the judgement. Grayscale said before that it was dedicated to transforming the product.
