The issue has also become “kind of a hot potato,” Fuhr said. Following the SEC’s decision, Grayscale Investments filed a lawsuit against the SEC on June 29 in the US Court of Appeals for the District of Columbia Circuit. The case could take years, and even if the court were to rule in Grayscale’s favor, an appeal would likely follow, she said.
“So, getting an actual decision based on going and fighting in the courts just seems like a difficult way to go about it,” she said.
Todd Rosenbluth, head of research at VettaFi LLC, a data and analytics provider, said the SEC under Chairman Gary Gensler — who was sworn into office last year — has repeatedly cited concerns about fraud and manipulation in spot bitcoin as well as inadequate investor protection. it should be a spot bitcoin ETF.
“And so, until either the leadership at the SEC changes or the facts change, and asset managers are able to demonstrate that there are adequate investor protections, I think every proposal to launch a spot bitcoin ETF will continue to be rejected,” Mr. Rosenbluth said.
As for Grayscale’s decision to sue the SEC, Mr. Rosenbluth said he would agree that Grayscale is “taking an unusual approach” in its effort to realize its goal of converting the Grayscale Bitcoin Trust into a spot bitcoin ETF.
Grayscale Bitcoin Trust, which has assets under management totaling $14.5 billion, began operations in September 2013 and was intentionally structured from the start to eventually convert to an ETF pending US regulatory approval, according to information available on Grayscale’s website.
Grayscale has sought to work “collaboratively and proactively with the regulatory community,” CEO Michael Sonnenshein said in an interview.
“And certainly, through the lens of acting as trustees, (we) have continued to act in an educational capacity vis-à-vis regulatory communities, vis-à-vis policymakers, etc.,” he said, adding that Grayscale’s efforts have spurred “a lot of movement in Washington” around involvement in crypto-related issues.
Grayscale has advocated on behalf of investors because they know that converting to an ETF would give investors greater protection. The fund is held by nearly a million investor accounts in the United States across all 50 states, he said.
Given that investor protection is among the SEC’s core principles, the decision regarding the Grayscale Bitcoin Trust coming out negatively meant that “the only natural next step in the pursuit of what we want for our investors is to take it to the court system,” Mr. Sonnenshein said.
“It’s a process that just started very recently, but one that we’re confident about,” he said.
Grayscale has been guided by its advisers to believe the lawsuit could be “a nine- to 12-month process, maybe shorter, maybe a little bit longer,” he said.
Regulators like the SEC “get sued,” Sonnenshein said.
“These matters are not decisions that we or I’m sure others take lightly,” he said. “But these are actually events that are somewhat common.”
The SEC’s five commissioners, who are nominated by the president with the consent of the Senate, have staggered five-year terms. The chairman and commissioners can continue to serve for approx. 18 months after the terms expire if not replaced before then. No more than three commissioners may belong to the same political party.
