Grayscale Labels Spot ETF Rejection 'Arbitrary, Capricious, and Discriminatory' in SEC Lawsuit

By: Dickson Arinze

Grayscale Labels Spot ETF Rejection 'Arbitrary, Capricious, and Discriminatory' in SEC Lawsuit

October 12, 2022 6:13 AM

Grayscale claims the SEC's reasoning for rejecting its request to convert the Grayscale Bitcoin Trust into a spot Bitcoin ETF is "flawed" and "inconsistently applied," according to a legal brief filed on Tuesday.

 

In its opening legal brief filed as part of its lawsuit against the U.S. Securities and Exchange Commission (SEC), Grayscale Investments called the SEC's June decision to reject its application to convert its flagship Grayscale Bitcoin Trust (GBTC) into a spot bitcoin exchange traded fund (ETF) "arbitrary, capricious, and discriminatory."

 

On June 29th, Grayscale sued the SEC, asking the United States Court of Appeals for the District of Columbia Circuit to review the regulator's decision. The SEC published its decision earlier that day.

 

Since last year, the SEC has denied over a dozen similar applications from other major players in the crypto world, including WisdomTree and Ark21Shares, due to a lack of investor protections and the possibilities for fraud and deception.

 

The day Grayscale submitted its brief, WisdomTree had its most recent application denied.

 

The agency has rejected multiple applications for bitcoin spot ETFs but has approved multiple bitcoin futures ETFs, a distinction that Grayscale's legal team claims is "arbitrary" and "outside the Commission's authority."

 

In their brief, the lawyers argue that it would be unfair to approve one type of Bitcoin ETF while rejecting another because the two types of Bitcoin ETF both track the spot price of Bitcoin and are priced using overlapping indices.

 

In a press release, Grayscale's Chief Legal Officer Craig Salm said, "The Administrative Procedure Act and Exchange Act require rules and regulations to be applied without favoritism for one type of product or another."

 

On November 9th, we expect a reply from the SEC.