Grayscale Investments sues the SEC over the rejection of their spot bitcoin ETF application

On June 30, 2022, Grayscale Investments, a leading bitcoin manager, took a bold step by filing a lawsuit against the U.S. Securities and Exchange Commission (SEC). This legal action was in response to the SEC’s rejection of Grayscale’s application to convert its flagship product, the Grayscale Bitcoin Trust (GBTC), into a spot Bitcoin exchange-traded fund (ETF).
 

The SEC had earlier denied the application, citing persistent concerns about market manipulation and the lack of a surveillance-sharing agreement between a significant regulated market and a regulated exchange. These concerns echoed the regulator’s longstanding reservations, which had been the basis for rejecting other spot Bitcoin ETF applications in the past.
 

Grayscale’s move to sue the SEC came barely an hour after the rejection, signaling the company’s preparedness and determination to challenge the decision. The firm enlisted the expertise of former Solicitor General Don Verrilli, a seasoned legal professional with experience in Administrative Procedures Act (APA) proceedings, to lead the litigation.
 

In their statement, Grayscale expressed deep disappointment with the SEC’s decision, emphasizing their belief in the SEC’s mandate to protect investors and maintain fair, orderly, and efficient markets. The company argued that the SEC’s approval of Bitcoin futures ETFs indicated that the underlying Bitcoin market was deemed reliable, and thus, by extension, a spot Bitcoin ETF should also be permissible.
 

The lawsuit was filed with the U.S. Court of Appeals for the District of Columbia Circuit, where Grayscale sought a review of the SEC’s order. The core of Grayscale’s argument was that the SEC was acting arbitrarily and capriciously by not applying consistent treatment to similar investment vehicles, thereby violating the APA and the Securities Exchange Act of 1934.