An appeals court in the United States has ruled to grant Grayscale’s petition for review of the Securities and Exchange Commission’s (SEC) decision, overturning its order banning the issuance of a spot Bitcoin ETF. Meanwhile, Grayscale investors filed a class action lawsuit against the company.
The U.S. Court of Appeals for the District of Columbia Circuit has issued a verdict in Grayscale Investments’ litigation against the SEC. Judge Neomi Rao annulled the SEC’s decision, by which the regulator rejected Grayscale’s application to create a spot Bitcoin ETF, and ordered to reconsider the application.
On June 29, 2022, the SEC rejected Grayscale’s application to transform the Grayscale Bitcoin Trust (GBTC) OTC fund into a spot Bitcoin ETF and list the asset on NYSE Arca, after which the company’s representatives filed a lawsuit against the regulator.
The trial court dismissed Grayscale’s lawsuit, but the appeal was successful. Judge Neomi Rao said the SEC representatives didn’t provide any explanation for their decision to reject Grayscale’s application amid approval of the listing of two similar assets — Bitcoin ETF futures. However, the court’s decision and review of the application don’t guarantee the issuance of a spot Bitcoin ETF. Michael Sonnenshein, Head of Grayscale, welcomed the court’s decision and said the company’s lawyers scrutinized it.
Grayscale Bitcoin Trust is a Bitcoin fund traded in the OTC market with more than $14 billion in assets under management. As a result of the SEC’s litigation and problems at Digital Currency Group (DCG), Grayscale’s parent company, GBTC shares were trading at a discount of nearly 50%.
At the same time, Alameda Research and several funds, as shareholders of GBTC and Grayscale Ethereum Trust (ETHE), filed a class action lawsuit against Grayscale, demanding the company’s right to redeem units and compensation for “exorbitant” management fees with a reduction to “competitive rates.” According to court documents, the current management fee is 2% per annum, earning Grayscale over $1.3 billion over the past two years. The situation is complicated because the company has suspended redemption of GBTC, and holders can only sell the instrument in the market at a 25% discount. All holders of GBTC and ETHE can join the class action lawsuit against Grayscale.
Nevertheless, the cryptocurrency community’s reaction to the overturning of the SEC’s decision was unequivocally approving. Lawyers and company executives agreed that the regulator’s methods seem like “gangster behavior” and that resisting the SEC’s pressure could lead to bankruptcy even if the company wins in court. Moreover, in case of its loss, the regulator may claim that “the judges got it wrong” and continue the pressure under other excuses. The court decision positively impacted BTC quotes, which rose by almost 6% over the day.
The excitement around spot Bitcoin ETFs in the U.S. arose after the application for issuing such a financial instrument was filed by BlackRock.
