Grayscale’s CEO says, reported by Reuters, that the SEC will sue if the court dismisses the suit


© Reuters. FILE PHOTO: Representations of the cryptocurrency Bitcoin, Ethereum, and Dash sink into the water in this illustration taken May 23, 2022. REUTERS/Dado Ruvic/Illustration

by Hannah Lang

(Reuters) – The CEO of crypto-assets manager Grayscale Investments said he is preparing for a protracted legal battle with the U.S. Securities and Exchange Commission to create a bitcoin-trading spot fund.

While the company awaits a court ruling on a lawsuit filed in June against the SEC, CEO Michael Sonnenschein said he is willing to appeal if the court upholds the SEC’s decision to reject the Bitcoin ETF proposal.

“The only option the SEC gave us was to turn around and say, you know, that’s not right,” Sonnenshine said. Suing the regulator was one of the most important decisions he made as CEO, and it was “one I didn’t do and we as a team didn’t take it lightly.”

The SEC denied Grayscale’s request to hide the principal Grayscale Trust (GBTC) in an ETF in June, arguing that the proposal did not meet standards designed to prevent fraudulent practices and protect investors.

Grayscale sued the SEC immediately after its proposal was rejected, alleging that the regulator was acting arbitrarily in denying applications for bitcoin spot ETFs when it previously approved bitcoin futures ETFs.

The case is being heard by the District of Columbia Court of Appeals. If either party were to appeal the ruling, the case would either go to the US Supreme Court or commission en banc review. Oral arguments in the case are scheduled to occur March 7, and Grayscale expects a final ruling in the case in the fall, Sonnenshein said.

The Securities and Exchange Commission did not immediately respond to a request for comment.

According to the Grayscale website, the Grayscale Bitcoin Trust has $14.5 billion in assets under management. GBTC’s discount on bitcoin hovers around 41%, coming under pressure after the collapse of cryptocurrency exchange FTX and the suspension of withdrawals by cryptocurrency lender Genesis.

There are other concerns about infection. Both Genesis and Grayscale are owned by venture capitalist Digital Currency Group (DCG), and questions about whether DCG should sell its GBTC holdings have also weighed on the discount.

Genesis’ cryptocurrency lending unit filed for bankruptcy on January 19.

Grayscale had no operational reliance on DCG or Genesis, and was not affected by bankruptcy, Sonnenshein said. However, Genesis owns about 5% of all outstanding GBTC shares, according to a person familiar with the matter. Genesis did not immediately respond to a request for comment.

“Grayscale is an independent entity with its own leadership, governance, budgets, policies and procedures, and the assets underlying Grayscale’s suite of products are the property of its respective shareholders,” said Sonenshine.

If its legal challenge to the SEC is unsuccessful, Grayscale will explore options to return a portion of GBTC’s capital to shareholders, Sonnenshein told investors in a letter in December.



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