January 25 (Reuters) – Crypto asset manager Grayscale Investments is preparing for a lengthy legal battle with the US Securities and Exchange Commission over the creation of a bitcoin spot exchange-traded fund, the company’s CEO said.
While the company awaits a court ruling on its June lawsuit against the SEC, CEO Michael Sonnenschein said he was ready to appeal if the court upheld the SEC’s decision to reject the bitcoin ETF offer.
“The only option the SEC has left us is to turn around and say, you know what, that’s just not right,” Sonnenschein said. one that I didn’t do and we didn’t take it lightly as a team,” he said, adding that he was confident the court would rule in the firm’s favor.
In June, the SEC rejected Grayscale’s application to convert its flagship Bitcoin Trust (GBTC.PK) (GBTC) into an ETF, arguing that the proposal did not meet standards designed to prevent fraud and protect investors.
Shades of Gray sued the SEC almost immediately after its proposal was rejected, alleging that the regulator acted arbitrarily in rejecting bids for bitcoin spot ETFs, even though it had previously approved bitcoin futures ETFs.
The case is being heard in the District of Columbia Court of Appeals. If either party had filed an appeal against the decision, the case would have gone either to the U.S. Supreme Court or to a full panel. Oral arguments in the case are scheduled for March 7, with Grayscale expecting a final decision in the fall, Sonnenschein said.
The SEC did not immediately respond to a request for comment.
According to the Grayscale website, the Bitcoin Trust manages $14.5 billion in assets. The GBTC discount to Bitcoin is hovering around 41%, coming under pressure after crypto exchange FTX collapsed and crypto lender Genesis put withdrawals on hold.
There are other concerns about infection. Genesis and Grayscale are owned by the Digital Currency Group (DCG), and questions about whether DCG will have to sell its GBTC holdings also weighed on the discount.
The crypto-lending arm of Genesis filed for bankruptcy on January 19.
According to Sonnenschein, Grayscale was not dependent on DCG or Genesis operations and was not affected by the bankruptcy. However, according to a person familiar with the matter, Genesis owned approximately 5% of all outstanding GBTC shares. Genesis did not immediately respond to a request for comment.
“Grayscale is a separate entity with its own leadership, governance, budget, policies and procedures, and the assets at the heart of the Grayscale family of products are owned by its respective shareholders,” said Sonnenschein.
If legal action with the SEC fails, Grayscale will explore options to return some of the GBTC capital to shareholders, Sonnenschein told investors in a letter in December.
Reporting by Hannah Lang in Washington; Editing: Lanan Nguyen, Stephen Coates and Louise Havens
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