The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin ETF, citing a failure by the investment manager to answer questions about concerns around market manipulation.
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The District of Columbia Court of Appeals has scheduled a date to hear oral arguments in Grayscale’s lawsuit contesting the Securities and Exchange Commission’s decision to deny the conversion of its Grayscale Bitcoin Trust to an exchange-traded fund.
Both sides will present their case for the court at 9:30 a.m. ET on March 7, according to a court order filed Jan. 23. Grayscale had previously expected oral arguments to begin in the second quarter.
Grayscale initiated its lawsuit against the SEC in June 2022 after the agency rejected its application to turn its bitcoin trust, better known by its ticker GBTC, into an ETF. The company decided to pursue the ETF, which would be backed by bitcoin rather than bitcoin derivatives, after the SEC approved ProShares’ futures-based bitcoin ETF in October 2021.
The ruling faced multiple delays but the SEC ultimately rejected the application last summer, citing failure by Grayscale to answer questions related to concerns about market manipulation and investor protections.
Investors are sitting on the sidelines of the crypto market after a rough 2022 dragged down by challenging macro conditions as well as the destruction caused by the demise of Terra and the bankruptcies of Three Arrows Capital, Celsius, Voyager and FTX. Crypto lender Genesis, the sister company of Grayscale, filed for bankruptcy Thursday.
Still, crypto investors are longing to see the SEC approve a U.S. spot bitcoin ETF – and no longer just as a way to open the crypto market to more institutional investment.
Investors have grown concerned about the harm GBTC could do to shareholders; the shares have been trading at a growing discount to NAV (currently about 40%) and the structure of the trust is such that shares can’t be redeemed. Many agree that the SEC giving the green light to Grayscale to convert the trust into an ETF would be the ideal path forward for investors.
GBTC, which had $14.5 billion in assets under management as of Monday, was the first crypto product investors could trade in their brokerage accounts to get exposure to bitcoin. It was launched in 2013, well before the approval of bitcoin ETFs in Canada or bitcoin futures ETFs in the U.S.
Grayscale charges a 2% annual fee to investors, making it a cash cow for parent company Digital Currency Group, led by Barry Silbert. Silbert has been under fire by many investors in crypto, most recently Gemini’s Cameron Winklevoss.
In recent weeks, Fir Tree Capital Management has sued Grayscale over potential mismanagement and conflicts of interest of GBTC.
Valkyrie and Osprey Funds also have both urged Grayscale to withdraw as sponsor of GBTC and name their funds the sponsor instead to give shareholders a better path to lower management fees and the implementation of a redemption program.
—CNBC’s Ryan Browne contributed reporting