Grayscale is suing the U.S. Securities and Exchange Commission after the regulator denied the company's bid to convert its bitcoin trust into an exchange-traded fund.
The SEC late Wednesday published a notice that it had rejected Grayscale's request, saying it did not meet legal standards designed to protect investors. Grayscale announced shortly after that it had filed a lawsuit in the U.S. Court of Appeals for the D.C. Circuit.
"Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the U.S. regulatory perimeter," said Michael Sonnenshein, Grayscale’s CEO. "We will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles.”
The company had been hinting for weeks that it would sue if the SEC denied its application. Earlier this month, Grayscale brought on some major legal firepower by hiring Donald Verrilli, who served as solicitor general during the Obama administration, as a legal strategist.
"The SEC is failing to apply consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934,” Verrilli said in the company's press release.
The rejection marks the latest piece of bad news for the industry. Bitcoin has seen its market value fall by more than 70% from a peak in November near $70,000.
Grayscale filed for approval in October to convert its bitcoin trust, GBTC, into a spot ETF, a move it said would broaden access to the cryptocurrency by offering a fund based on holding the asset rather than its futures. Launched in 2013, GBTC holds about $13 billion in assets.
Grayscale told the SEC in May that converting the trust into an ETF could unlock about $8 billion for investors.
The SEC has previously declined similar attempts from other companies to hold bitcoin directly in an ETF rather than through bitcoin futures contracts.