Grayscale Investments LLC, the largest crypto asset manager, said the US Securities and Exchange Commission acted arbitrarily earlier this year in rebuffing a bid to convert its $12 billion spot Bitcoin trust into an exchange-traded fund.
The rejection over the risk of fraud and manipulation in the spot Bitcoin market is “capricious” and “discriminatory” because the SEC has allowed futures-based Bitcoin ETFs and they are exposed to similar concerns, Grayscale said Tuesday in the opening brief of its lawsuit against the regulator.
In a statement, the firm said the brief argues that “the test the SEC has applied to Bitcoin-related ETFs, and only Bitcoin-related ETFs, is flawed and has been inconsistently applied with a ‘special harshness’ to spot Bitcoin ETFs.”
The SEC didn’t immediately reply to a request for comment on the Grayscale argument.
Grayscale sued the SEC mid-year after the regulator denied the company’s application to convert its Grayscale Bitcoin Trust, the world’s largest Bitcoin fund, into an ETF. The fund was started in 2013 and the company filed its plan to change the structure in October last year.
The shift would help to close the fund’s near-record discount to net asset value. The ETF structure has a creation and redemption process that helps to keep a fund’s price in line with its underlying holdings.
Bitcoin, the biggest digital token by market value, has sunk about $50,000 from a peak of nearly $69,000 hit in November at the height of a pandemic-era mania for crypto.
A global wave of monetary-policy tightening to tackle high inflation has sucked liquidity from financial markets and hurt demand for speculative investments.
The share price of the trust rose less than 1% on Wednesday to $11.25 as of 11:38 a.m. in New York. It has declined 67% this year.
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