Grayscale’s ETF is the latest fund to be rejected by the SEC, joining SkyBridge, VanEck, and WisdomTree. The move has sparked numerous debates.
The Securities and Exchange Commission (SEC) officially rejected the Grayscale Spot Bitcoin ETF proposal on June 29.
On October 19, 2021, the asset management company submitted a proposal to convert Grayscale Bitcoin Trust (GBTC) to a bitcoin spot ETF. A new application was submitted in December, but the verdict was delayed until February 2022.
The SEC May Not Like Bitcoin
The US government’s regulatory agency has yet to approve the listing of a bitcoin spot ETF, but it has approved many futures-based products.
Grayscale has applied to the SEC multiple times to convert the Bitcoin Trust Fund into an ETF. Unfortunately, all attempts were unsuccessful.
Grayscale was prepared to be approved prior to the decision through an agreement with Jane Street and Virtu to discount GBTC upon conversion. That arrangement cannot move forward without approval.
Craig Salm, Grayscale’s chief legal officer, suggested that the agency’s refusal could have been due to rules in their favor rather than the law itself. Salm went on to say that while the watchdog understands the concept of an ETF, it is responding to the request in an unfriendly manner.
Many Investors Don’t Care
Grayscale, on the other hand, foresaw this outcome and planned legal preparations to confront the SEC’s decision. Bloomberg reported in March that Grayscale was preparing to sue the SEC if its proposal for a spot Bitcoin ETF was rejected.
The fund applied for a Bitcoin ETF and planned for every potential situation. Grayscale CEO Michael Sonnenshein stated that if the SEC refused, Grayscale might sue the agency under the Administrative Procedure Act (APA), the SEC’s fundamental weakness.
Shortly after the results were issued, Grayscale filed a lawsuit against the SEC’s decision in the U.S. Court of Appeals for the District of Columbia Circuit. The point of Grayscale is that approving bitcoin futures ETFs but rejecting spot products could violate the Administrative Procedures Act.
Clearly Not a Popular Move
The decision received a huge number of disagreements from the crypto community. Scaramucci, the founder of global alternative investment firm SkyBridge Capital, made a sarcastic comment, saying U.S. SEC “now stands for Stop Economic Creativity.”
“It’s a missed opportunity for the country. We’ve had the mantle of financial services leadership for a hundred plus years. And the fact that the SEC is moving in this direction, where the Europeans are allowing for a cash ETF, the Canadians are allowing for a cash ETF, just a huge missed opportunity. You know, the SEC now stands for ‘Stop Economic Creativity’, and I think that is a terrible thing for the country,” said Scaramucci in his interview with CNBC’s Squawk Box.
SkyBridge is one of the companies that was rejected by the agency. After several delays, the SEC formally rejected First Trust SkyBridge’s application for a spot Bitcoin exchange-traded fund (ETF) in January 2022.
The decision came after SkyBridge initially applied to the NYSE to establish a Bitcoin ETF in March 2021. In July and November, the SEC postponed a decision on whether to approve or reject the proposed ETFs.
Are there any specific reasons? According to the SEC, the products did not meet the standards for listing a financial product under its rules of practice or the provisions of the Exchange Act.
According to the SEC, those Bitcoin-related products have shown vulnerabilities in terms of, “fraudulent and manipulative acts and practices.” SEC’s decision is “to protect investors and public interests.”
SEC much likely stands for “Stop Every Cryptocurrency,”, especially with the number of unpleasant cryptocurrency companies dealing with SEC.
In addition to the Grayscale lawsuit, the SEC is also facing the Ripple court case, which has been ongoing for more than a year and six months when the court decided to postpone it until the end of this year, with the possibility of extending beyond 2023.