Leading asset management firm Grayscale Investments has filed a lawsuit against the United States Securities and Exchange Commission (SEC) over rejecting its application to convert the Grayscale Bitcoin Trust (GBTC) to a Bitcoin Spot Exchange-Traded Fund (ETF).

SEC Rejects Grayscale ETF Application

The SEC, in its ruling on Wednesday, turned down Grayscale’s proposal to convert its $40bn Bitcoin Trust into a spot ETF, citing failure to meet standard consumer requirements, including measures “designed to prevent fraudulent and manipulative acts and practices.”

The regulator also argued that the New York Stock Exchange (NYSE Arca), one of the famous marketplaces in the U.S. for listing and trading ETFs, lacks an agreement to monitor the price of bitcoin for manipulation with another legalized platform that manages “significant” amounts of BTC trading. The NYSE Arca would have listed GBTC if it were approved. 

The agency is concerned that the Grayscale Bitcoin Spot ETF proposal does not offer U.S. investors sufficient protection against market manipulation and volatility. 

Grayscale Disagrees With SEC’s Decision

Shortly after the rejection, the asset management firm said it does not agree with the regulator’s decision, noting that the SEC is failing to apply fair treatment to Bitcoin investment vehicles as it has done to several Bitcoin Spot ETFs.

The Commission has rejected many spot bitcoin ETF proposals in the past, approving only a few Bitcoin Futures applications.

On this note, Grayscale has filed a petition for review at the U.S. Court of Appeals in the District of Columbia to review the SEC’s decision. The company stated that it would continue its mission to convert its GBTC into a spot Bitcoin ETF.  

Speaking on the matter, Michael Sonnenshein, CEO of Grayscale Investments, noted that the firm is ready to “leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of bitcoin investment vehicles.” 

Grayscale had earlier signed agreements with Wall Street powerhouses Jane Street and Virtu Financial (VIRT) as “authorized participants” on June 27, pending the approval of the proposal. 

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