Bitcoin ETF Affair Gives Friends of Grayscale Another Chance to Show Support



Grayscale Investments expects broad support from investors, academics and others in the crypto industry in its legal battle with the Securities and Exchange Commission to bring the first bitcoin fund to the exchange-traded cash in the US market.

After more than 11,000 letters were received by the SEC in support of the asset manager’s plan to convert its Bitcoin to grayscale
Trust an ETF, chief legal officer Craig Salm said the company expects similar support when briefs from friends of the court are filed for Tuesday’s deadline. Letter writers included trust shareholders, companies like Coinbase, Susquehanna, and Silvergate, and trade groups like Blockchain Association and the Association of Digital Asset Markets.

Friend of the court, or amicus curiae, briefs are filed by persons or organizations who do not represent a party to an action but who have a significant interest in the case.

“If you just look at the SEC comment letters, a lot of them were from our investors who strongly believe there is an investor protection issue here and allowing GBTC to convert to an ETF would only make the product more protected, more regulated and help it better track the value of its underlying asset,” says Salm.

On June 29, the SEC denied the company’s request to convert the trust, the world’s largest bitcoin fund, into an exchange-traded product. On the same day, Grayscale filed a petition for review with the District of Columbia Court of Appeals, initiating a lawsuit challenging the decision. Because the action is against a US government agency, the case begins at the appeals level, rather than a district court, the usual place of trial.

In its 100 pages opening brief submitted last week, the asset manager argued that the Commission treated bitcoin spot ETFs with “particular harshness” compared to other types of investments. The SEC has approved several bitcoin futures ETFs, but has repeatedly rejected funds that directly hold bitcoin, including those from Grayscale.

“We argue that the SEC arbitrarily treats bitcoin spot ETFs differently from bitcoin futures ETFs, even though they are subject to the same risks in that they are both based on the same underlying bitcoin spot markets” , says Salm. “At the end of the day, it’s not necessarily a bitcoin problem. It’s really about fair and equal treatment under the law.

The brief also claims that “the Commission’s decision is not simply discriminatory and unreasonable, it harms the 850,000 investors who own shares in the trust,” preventing them from more than $4 billion in unrealized value.

Converting the trust to an ETF would eliminate a record delivery GBTC has traded lower this month (36%) against its underlying asset value.

Following the final brief in December, a panel of three judges will be selected and oral argument schedules will be established. According to Salm, the litigation could take up to nine more months.

If Grayscale loses on the call, it might look for a bench hearing with the full panel of DC Circuit Judges or appeal to the United States Supreme Court.

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