Grayscale Wins SEC Lawsuit In Court, Opens Way For Spot Bitcoin ETF

Greyscale won a legal feud in court against US regulators. (Photo; Doc. Altcoinbuzz)

JAKARTA - Grayscale Investments, the world's largest crypto asset management company, won a legal victory over the US Securities and Exchange Commission (SEC) in its bid to launch a bitcoin-based exchange-trained fund (ETF) spot product.

This decision is history for the crypto industry, which has been waiting for bitcoin spot ETF approval for years. However, Grayscale's trip to the spot ETF bitcoin didn't go smoothly and had to face many challenges including US regulators.

The bitcoin spot ETF is different from the futures of bitcoin ETF, which follows the price of bitcoin futures contracts, which is an agreement to buy or sell bitcoin at certain prices and dates in the future. The future of bitcoin ETF tends to have a higher cost and risk than the spot's bitcoin ETF, as it has to pay the premium and rollover fees to extend the contract.

Grayscale Investments has been managing crypto investment products since 2013, one of which is the Grayscale Bitcoin Trust (GBTC), which is a closed investment product that allows investors to gain exposure to bitcoin without having to own or store the coin directly. GBTC has assets under management (AUM) of around $17 billion, and is the largest crypto investment product in the world.

However, GBTC has some drawbacks, such as not being free-traded on the stock exchange, having a management fee of 2%, and often trading with a premium or a large discount on the value of its net assets (NAV) per share. Therefore, Grayscale is ambitious to turn GBTC into an ETF bitcoin spot, which is expected to increase liquidity, transparency and efficiency of its products.

To realize his ambition, Grayscale applied for an ETF bitcoin spot to the SEC in April 2021, but was rejected by regulators on the grounds that the spot bitcoin market was not mature enough and vulnerable to manipulation. Grayscale did not accept this rejection, and sued the SEC in court in June 2021, filing an appeal against the SEC's decision.

Grayscale is partnering with Donald B. Verrili, a well-known lawyer who once served as a General Solidator under Barack Obama's administration, to lead his legal team. Grayscale argues that the SEC has acted arbitrarily and unfairly in rejecting their petition, and that they have met all the necessary requirements to launch a spot bitcoin ETF.

After going through a long and complicated legal process, Grayscale finally won his lawsuit in August 2023, when the US Court of Appeal ruled that the SEC should review its decision and give Grayscale approval. This ruling was announced by the Chief Judge, Sri Srinivasan, who stated that the SEC had failed to provide adequate reasons to reject Grayscale's petition.

The SEC did not appeal against this ruling, and ultimately gave Grayscale official approval in October 2023, making Grayscale the first company to launch a spot ETF bitcoin in the US. This approval is a milestone for the crypto industry, which has been waiting for the spot's bitcoin ETF since 2017, when the first bitcoin ETF application was rejected by the SEC.

Grayscale isn't the only company seeking to launch spot bitcoin ETFs in the US. Several other companies, such as BlackRock, Fidelity, Bitwise, and VanEck, have also submitted a bitcoin spot ETF application to the SEC, but have yet to obtain approval.

The SEC has done a lot of negotiations with the petitioners, and demanded that they meet some of the requirements, such as adopting the Cash Creates model, a model where investors must provide bitcoins to exchange them for ETF shares, and lowering their management costs to compete with Grayscale, which has reduced its management costs from 2% to 1.5%.