Grayscale Investments is expecting to receive widespread support from investors, academics and elsewhere in the crypto industry in its court battle with the Securities and Exchange Commission to bring the first exchange-traded spot bitcoin fund to the U.S. market.
After more than 11,000 letters were received by the SEC in support of the asset manager’s plan to convert its Grayscale Bitcoin
Friend of the court, or amicus curiae, briefs are filed by people or organizations who do not represent a party to an action but have a strong interest in the case.
“If you just look at the SEC comment letters, a lot of them were from our investors who very much believe there’s an investor protection issue here and that allowing GBTC to convert into an ETF would only make the product more protected, more regulated and help it better track its underlying asset value,” says Salm.
On June 29, the SEC denied the company’s application to convert the trust , the world’s largest bitcoin fund, into an exchange-traded product. The same day, Grayscale filed a petition for review with the Court of Appeals for the District of Columbia, initiating a lawsuit to contest the decision. Because the action is against an agency of the U.S. government, the case starts off at the appeals level, rather than a district court, the usual venue of first instance.
In its 100-page opening brief submitted last week, the asset manager argued that the Commission is treating spot bitcoin ETFs with “special harshness” as compared to other types of investments. The SEC has approved several bitcoin futures ETFs but repeatedly rejected funds that hold bitcoin directly, including Grayscale’s.
“We make the case that the SEC is arbitrarily treating spot Bitcoin ETFs differently from bitcoin futures ETFs even though they’re subject to the same risks in that they’re both based on the same underlying spot bitcoin markets,” Salm says. “At the end of the day, it isn’t necessarily an issue about bitcoin. It’s really about fair and equal treatment under the law.”
The brief also claims that “the Commission’s decision is not merely discriminatory and unreasoned, it harms the 850,000 investors who own shares in the trust,” keeping them from over $4 billion in unrealized value.
The trust’s conversion into an ETF would eliminate a record-high discount GBTC has been trading at this month (36%) relative to its underlying asset value.
Following the final brief in December, a panel of three judges will be selected, and schedules for oral arguments will be drawn up. According to Salm, the litigation could take up to nine more months.
If Grayscale loses at the appellate level, it could seek an en banc hearing with the entire group of judges in the D.C. Circuit or appeal to the U.S. Supreme Court.