Bitcoin ETF Case gives Friends of Grayscale another chance to show support

Grayscale Investments expects to receive broad support from investors, academics and elsewhere in the crypto industry in its legal battle with the Securities and Exchange Commission to bring the first exchange-traded spot bitcoin fund to the US market.

After more than 11,000 letters were received by the SEC in support of the asset manager’s plan to convert its Grayscale BitcoinBTC
Relying on an ETF, Chief Legal Officer Craig Salm says the company expects similar support when amicus briefs are filed for Tuesday’s deadline. Letter writers included the trust’s shareholders, companies such as Coinbase, Susquehanna and Silvergate and trade groups including the Blockchain Association and the Association of Digital Asset Markets.

Friend of the court, or amicus curiae, briefs are submitted by persons or organizations who do not represent a party in an action, but who have a strong interest in the matter.

“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 just make the product more protected, more regulated and help .it is better to track the underlying asset value, says Salm.

On June 29, the SEC rejected the company’s application to convert the trust, the world’s largest bitcoin fund, into an exchange-traded product. On the same day, Grayscale filed a petition for review with the Court of Appeals for the District of Columbia, and commenced a lawsuit challenging the decision. Because the action is against an agency of the US government, the case begins at the appellate level, rather than in a district court, the usual place of first instance.

In its 100-page opening brief filed last week, the asset manager argued that the commission treats spot bitcoin ETFs with “special harshness” 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 allege that the SEC is arbitrarily treating spot Bitcoin ETFs differently than bitcoin futures ETFs, even though they are subject to the same risks in that they are both based on the same underlying spot bitcoin markets,” Salm says. “At the end of the day, it’s not 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 only discriminatory and unfair, it harms the 850,000 investors who own shares in the trust,” depriving them of more than $4 billion in unrealized value.

The trust’s conversion to an ETF would eliminate a record discount at which GBTC has traded this month (36%) to its underlying asset value.

After the final task in December, a panel of three judges will be selected and schedules will be set for oral arguments. According to Salm, the trial could take up to nine more months.

If Grayscale loses at the appeals level, it can seek one a banc hearing with the full panel of judges in the DC Circuit or appealing to the United States Supreme Court.