Only an hour after the US financial watchdog SEC rejected Grayscale's application for a Bitcoin ETF, the company announced that it will file a lawsuit. For ages, multiple parties have in vain been requesting a spot Bitcoin ETF. The rejection of the request didn't do the Bitcoin price a lot of good.
A Bitcoin ETF (Exchange Traded Fund) closely follows the Bitcoin price and makes it easy for investors to invest in Bitcoin. Several Futures Bitcoin ETFs already exist in the US but they do not track the market price but the price of futures contracts. In the eyes of many investors, they are inferior products, also because of the high commission that holders pay monthly.
Conversion of GBTC to ETF
Grayscale's own product, their Bitcoin Trust (GBTC), has a similar problem of not accurately tracking the price of Bitcoin. That's the reason the company has been pushing for a conversion of their product to an ETF for ages. The trust fund, which has been around since 2013, holds over 12 billion in Bitcoin. This makes Grayscale the largest institutional holder of Bitcoin in the world. In recent months, Grayscale had their clients bombard the SEC with requests for such a conversion.
To no avail. Recently, though, there had been slight hope, as SEC Chairman Gary Gensler had made it clear that Bitcoin will be considered a commodity. This again confirmed that Bitcoin won't face strict regulation like securities would.
But in rejecting Grayscale's request, the SEC let it be known that it sees "market manipulation" of the Bitcoin market as a problem, as well as the questionable status of USDT (Tether) in the crypto ecosystem. The SEC's motive, it says, is investor protection. On crypto Twitter, this remark has been met with contempt.
Grayscale's defense in court will likely revolve around the fact that a spot ETF is a similar product to a futures ETF. The SEC will probably counter that Futures markets are regulated and regular crypto exchanges are not yet.