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

The SEC's final deadline to rule on the digital-asset manager’s application to convert the Grayscale Bitcoin Trust (GBTC) into a physically-backed ETF is July 6.

(Bloomberg) -- Grayscale Investments LLC’s campaign to convert its almost $30 billion Bitcoin trust into an exchange-traded fund could end with legal action.

The Securities and Exchange Commission’s final deadline to rule on the digital-asset manager’s application to convert the Grayscale Bitcoin Trust (ticker GBTC) into a physically-backed ETF -- a product not yet approved by U.S. regulators -- is July 6. Should the SEC reject the filing, Grayscale would consider a lawsuit as part of its response.

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

The basis of the argument lies in the fact that the SEC has allowed Bitcoin derivatives-backed ETFs to trade, while continually denying spot ETF applications. Three Bitcoin futures ETFs were launched shortly after the SEC approval in late 2021. 

Attorneys at Davis Polk on behalf of Grayscale submitted a comment letter to the SEC in late November arguing in favor of the spot Bitcoin ETF. 

Read Earlier Coverage: Grayscale Files to Turn Biggest Bitcoin Fund Into an ETF (3)

Investor interest in the battle to bring a spot Bitcoin ETF to market is high, with roughly 2,700 letters submitted to the SEC as part of a standard 240-day review period, according to Grayscale. Sonnenshein said it was “extremely encouraging” to see investors rally behind their effort and emphasized the issue at hand -- investor protection. 

Sonnenshein said that every day its flagship fund is not an ETF is a detriment to investors, arguing that the absence of spot ETFs forces investors into futures-based products. Sonnenshein also pointed to GBTC trading below its net asset value or NAV. 

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

The Grayscale Bitcoin Trust currently trades at a 20% discount to net asset value, according to data compiled by Bloomberg. Sonnenshein said that the NAV and price of the fund should converge when the fund is eventually converted.

Grayscale Investments has more than a dozen funds with almost $40 billion in assets under management. The firm recently launched the Smart Contract Platform Ex-Ethereum Fund, which holds Cardano, Solana, Avalanche as well as other alternative coins. 

“It’s a matter of when, not a matter of if, a spot Bitcoin ETF is approved,” Sonnenshein said. 

--With assistance from Vildana Hajric.

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