Another turbulent week for the market is coming to an end, but there is no shortage of drama between crypto companies and regulators. The US Securities and Exchange Commission (SEC) is under fire for its latest rejection of Shades of grey Bitcoin (BTC-USD) exchange-traded fund (ETF). Now the SEC must prepare for a legal battle against the company.
The quest for a spot Bitcoin ETF has been a long one, fraught with setbacks for companies looking to implement it. Grayscale is the leader of this effort, attempting several times in recent years to bring such a fund to market. Each time, however, the SEC knocks down the effort.
Why do these companies struggle to get SEC approval? After all, there are already a multitude of Bitcoin futures ETFs on the market. This is because of market volatility. The government body is hesitant to endorse a spot ETF as it observes the sharp price drops that keep the market in disarray. You see, Bitcoin futures ETFs are a much easier beast to tame. Since they trade on the future price of Bitcoin, these ETFs may deviate slightly from volatility.
On the other hand, spot ETFs trade Bitcoin directly. This exposes investors to a much higher risk of losses. Clearly, the SEC seeks to protect American investors, and it simply considers spot ETFs to be too risky for Americans’ money.
Grayscale, a crypto asset manager known for its ETF products, has been trying for years to get its Bitcoin spot ETF approved. After multiple rejections, the company prepared to make this latest app the final application. While the SEC rejects this new attempt to commercialize the product, Grayscale is suing the SEC.
SEC slapped with grayscale lawsuit after rejecting Spot Bitcoin ETF
Recently, Grayscale was very hopeful in this latest Bitcoin ETF application. A letter to investors in recent days thanked fans for their work supporting the filing. More than 11,400 letters were sent to the SEC defending the ETF. The company also expressed belief that the SEC has finally gotten to grips with the idea of a spot ETF. But unfortunately, it looks like the company was getting a bit ahead of itself.
Last night the SEC announced that it was rejecting Grayscale’s latest filing. According to the SEC filing, it denied the request for failing to include a plan to reduce market manipulation.
In response to the rejection, Grayscale is suing the SEC. In the weeks leading up to this news, investors expected Grayscale to take legal action in the event of another rejection. The company even hired Donald Verrilli as legal counsel. Verrilli served as United States Solicitor General during the Obama administration.
In response to the rejection, Verrilli released a statement suggesting Grayscale’s course of action. Verrilli accuses the SEC of ‘not applying consistent treatment to similar investment vehicles’, adding that the body is acting ‘arbitrarily’ and in violation of the Administrative Procedure Act and the Securities Exchange Act of 1934.
The lawsuit will be brought in the United States Court of Appeals in Washington. If successful, Grayscale’s $13.5 billion bitcoin stash can be turned into the nation’s first bitcoin spot ETF, setting a precedent for other companies to roll out their own spot ETFs.
As of the date of publication, Brenden Rearick had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.