In a significant legal victory, Grayscale Investments has successfully overturned the United States Securities and Exchange Commission’s (SEC) rejection of its Grayscale Bitcoin Trust (GBTC) application, marking a potential breakthrough for the much-anticipated Bitcoin exchange-traded fund (ETF).
Grayscale Investments, the world’s largest crypto asset manager, has emerged triumphant in its legal battle against the SEC. The court of appeals ruled that the SEC’s decision to reject the GBTC application was “arbitrary and capricious.”
SEC’s Decision Reversed
The SEC previously rejected Grayscale’s application, citing concerns that the product did not adequately protect against fraudulent and manipulative practices. However, Grayscale fought back with a lawsuit, and the court’s latest decision overturned the SEC’s initial ruling.
According to court filings on August 29, Circuit Judge Neomi Rao granted Grayscale’s petition for review, instructing the SEC to vacate its order denying the GBTC listing application. This favorable outcome indicates that the SEC failed to provide sufficient explanation for rejecting Grayscale’s proposal. However, it does not guarantee the immediate listing of a Grayscale spot Bitcoin ETF.
Grayscale is currently conducting a thorough review of the court’s opinion, as stated by CEO Michael Sonnenshein.
🚨 JUST IN 🚨
The D.C. Circuit ruled in favor of @Grayscale in our lawsuit challenging the SEC's decision to deny $GBTC's conversion to an ETF!
Thank you to everyone who has been on this journey with us, especially our investors. We are grateful for your support and…
— Sonnenshein (@Sonnenshein) August 29, 2023
Persistent Legal Battle
The legal dispute began on June 29, 2022, when the SEC denied Grayscale’s request to convert GBTC into a spot ETF. In response, Grayscale’s senior legal strategist, former U.S. Solicitor General Donald B. Verrilli Jr., filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit. At the time, Sonnenshein expressed deep disappointment and vehement disagreement with the SEC’s decision.
Grayscale Bitcoin Trust is the largest over-the-counter Bitcoin fund, managing over $14 billion in assets. The ongoing litigation with the SEC and credit concerns surrounding its parent company, Digital Currency Group (DCG), caused GBTC shares to trade at a discount of nearly 50% to their net asset value earlier this year.
Challenges and Road to Recovery
Grayscale has faced various challenges throughout its journey. In October 2022, it terminated significant agreements with partner and digital currency broker Genesis Global. Shortly after, Genesis Global temporarily paused withdrawals due to market turmoil triggered by the collapse of the cryptocurrency exchange FTX. Additionally, the firm suffered the repercussions of the Three Arrows Capital debacle, with Genesis still owed a significant debt of $1.2 billion.
Furthermore, DCG, Grayscale’s parent company, came under scrutiny as it owes creditors over $3 billion and is reportedly contemplating selling a $500 million venture capital portfolio. Genesis Global alone owes $900 million to users participating in cryptocurrency exchange Gemini’s Earn program.
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