Effort to Reverse SEC Rejection of Bitcoin ETF Wins Broad Crypto, TradFi Support

Regulators rebuffed Grayscale's attempt to convert its bitcoin trust into an ETF. Grayscale has powerful allies as it seeks to overturn that decision.

AccessTimeIconOct 19, 2022 at 5:41 a.m. UTC
Updated May 9, 2023 at 3:59 a.m. UTC

An attempt to overturn the U.S. Securities and Exchange Commission's rejection of a bitcoin (BTC) exchange-traded fund (ETF) has won support from a wide group of major players in crypto and traditional finance, and even ex-officials from the nation's top markets regulators.

Grayscale Investments (which, like CoinDesk, is owned by Digital Currency Group) already offers the $2 billion Grayscale Bitcoin Trust (GBTC) that trades on U.S. exchanges like a stock. But it's a trust, and existing shares cannot be redeemed to help balance supply and demand, helping to explain why it has, since early last year, traded at a discount to the total value of its bitcoin holdings.

Grayscale sought SEC permission to turn the trust into an ETF, an investment vehicle where the number of shares outstanding can be reduced, which may make it a more appealing product for investors. The securities regulator denied that application in June, and Grayscale sued to reverse that decision.

This week, some of the biggest names in finance and regulation weighed in, submitting filings to the U.S. Court of Appeals for the District of Columbia Circuit in support of Grayscale.

The Blockchain Association, the Chamber of Digital Commerce and Coin Center said the SEC had approved a similar yet riskier type of product: ETFs that hold bitcoin futures contracts rather than bitcoin itself (as Grayscale wants to do). The ETF approach is "ideally suited for investors that desire exposure to bitcoin," according to their filing. The SEC's "'thumb on the scale' approach," the groups added, "does not withstand scrutiny."

The Blockchain Association's members include Circle, Jump, Kraken and Ripple, while the Chamber of Digital Commerce counts Binance.US, Citigroup, Fidelity, Goldman Sachs and Mastercard among its members. Coin Center is an educational and research institution focused on public policy issues related to crypto.

NYSE Arca, the stock exchange that wanted to list the Grayscale ETF, in its own filing pushed back on the SEC's assertion that the risk of market manipulation is one reason not to approve a bitcoin ETF. NYSE Arca, a division of markets giant Intercontinental Exchange, said the index it uses to determine bitcoin's valuation has been used "successfully for more than six years," and is already designed to mitigate potential fraud or market manipulation.

Some prominent former regulators also supported Grayscale. Two former SEC commissioners (including former Chair Harvey Pitt), former Commodity Futures Trading Commission commissioners, a number of senior academics and former Acting Comptroller Brian Brooks submitted their own amicus, or friend of the court, briefs. They argued the Grayscale trust addresses the SEC's investor protection concerns, and echoed Grayscale's own argument that the rejection is "arbitrary" given the approval of bitcoin futures ETFs.

Coinbase, the largest U.S. crypto exchange, also filed a separate amicus brief backing Grayscale.

In an opening legal brief submitted last week, Grayscale called the SEC's rejection “arbitrary, capricious and discriminatory."

UPDATE: (Oct. 18, 2022, 0:18 UTC): Adds members of Blockchain Association and Chamber of Digital Commerce and description of Coin Center.

UPDATE: (Oct. 19, 2022, 5:39 UTC): Adds Coinbase amicus brief in headline, lead paragraph.

UPDATE: (Oct. 19, 2022, 15:56 UTC): Adds filing from regulators, revises rest of the article.


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