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Grayscale’s Battle for a Bitcoin ETF Could End in a Lawsuit Against the SEC

(Bloomberg) — Grayscale Investments LLC’s campaign to turn its nearly $30 billion bitcoin trust into an exchange-traded fund could end with legal action.

The Securities and Exchange Commission’s deadline to rule on a digital-asset manager’s application to convert the Grayscale Bitcoin Trust (ticker GBTC) into a physically-backed ETF — a product not yet approved by US regulators — It’s 6th July. The SEC denies the filing, Grayscale will consider a lawsuit as part of its response.

“I think all options are on the table,” Grayscale CEO Michael Sonnenshine said in an interview Monday at Bloomberg News’s New York office.

The basis of the argument lies in the fact that the SEC allows bitcoin derivatives-backed ETFs to trade, while consistently denying spot ETF applications. The three bitcoin futures ETFs were launched in late 2021, shortly after the approval of the SEC.

Davis Polk’s attorneys on behalf of Grayscale submitted a comment paper in favor of the Spot Bitcoin ETF to the SEC in late November.

Read First Coverage: Grayscale Files to Convert Largest Bitcoin Fund into ETF (3)

According to Grayscale, investor interest in the battle to bring bitcoin ETFs to market is high, with approximately 2,700 letters submitted to the SEC as part of the standard 240-day review period. Sonnenshin said it was “extremely encouraging” to see investors rally behind their efforts and emphasized the issue — investor protection.

Sonnenshin said that not having its flagship fund ETFs every day is a disadvantage for investors, arguing that the absence of spot ETFs forces investors into future-based products. Sonnenshin also noted that GBTC trading is below its net asset value or NAV.

“GBTC has been trading today since 2015 and is an SEC-reporting company since January of 2020, so every single day it is trading and being bought and sold by investors and not added to the familiarity and safety of an ETF Rapper, we really don’t feel like the SEC is really doing everything they can to protect investors,” he said.

Grayscale Bitcoin Trust currently trades at a 20% discount on the net asset value, according to data compiled by Bloomberg. Sonnenshin said the NAV and the fund’s price should converge when the fund eventually converges.

Grayscale Investments has more than a dozen funds and approximately $40 billion in assets under management. The firm recently launched the smart contract platform X-Ethereum Fund, which houses Cardano, Solana, Avalanche as well as other alternative coins.

“It’s a matter of when, if the spot bitcoin ETF is not approved,” Sonnenshin said.

—With assistance from Vildana Hajrik.

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