The Securities and Exchanges Commission (SEC) denied Grayscale’s proposal for a Bitcoin ETF, but the business will not give up without a fight. It is preparing for a judicial battle with the regulator, supported by a few legal provisions.
Grayscale will be in court.
In an interview, Grayscale’s Chief Legal Officer, Craig Salm, said that the business would fight the SEC’s decision to reject its spot Bitcoin ETF application. On June 29, the SEC denied the company’s registration because it did not adequately prevent fraud and manipulation.
Grayscale seeks major victory over the SEC regarding its Spot Bitcoin ETF. Image: Khaosai Wongnatthakan / Getty Images/iStockphoto
According to Salm, Grayscale promptly filed a Petition of Reconsider, requiring the courts to review the application denial decision. The lawsuit procedure is likely to commence upon the conclusion of the review. It will involve briefs, the selection of judges, and oral arguments provided by the attorneys for both sides.
Salm explains that since the SEC is a federal agency, the action will not be brought in the district courts but in the appellate courts. This dramatically shortens the time required to make a judgement, and Salm stresses that its relationship with the SEC will not be affected.
“We have nothing but respect for the individuals at the SEC who have spent years working through difficult issues presented by the novelty of digital assets, and that certainly includes spot Bitcoin ETFs,” said Salm. However, “when private businesses disagree with government actions, they can appeal to the court system to make thoughtful and reasoned determinations.”
When asked about the probable duration of the case, he replied that it might be settled in as little as one year or as long as two years. He adds that regardless of the time constraint, the strength of the company’s case would result in a favourable ruling.
The foundation for Grayscale’s Argument
Grayscale will argue in court that the SEC accepts Bitcoin futures ETFs but rejects spot ETFs constitutes “unfair discrimination.” The legal team described the SEC’s judgement as “arbitrary” as the pricing of both ETFs is derived from the same spot markets.
The legal team representing Grayscale will depend on the Administrative Procedure Act (APA) and the Securities Exchange Act of 1934. In the case of a loss in the appeal courts, the corporation can request an en banc hearing, in which the whole group of district judges will weigh in or proceed to the Supreme Court.
The SEC authorised a futures-based ETF for the first time in October 2021, but it has taken a challenging position on spot Bitcoin ETFs. The Commission has denied Bitwise, NYDIG, and Global X applications, creating uncertainty for Bitcoin investors.