Grayscale (Ticker GBTC) is the world’s largest Bitcoin Fund, focusing on bringing the future of digital assets closer to reality. In a recent turn of events, the Securities and Exchange Commission denied the company’s submission to create a bitcoin exchange-traded fund. In response, Grayscale Bitcoin Trust filed a lawsuit on the same day the rejection was announced, furious over the decision. Grayscale has been adamant about the accessibility of digital assets to the public, and this has been a blow to their ongoing commitment to their investors, as well as impeding the current rapid trajectory that cryptocurrency and blockchain have been on.
Furthermore, due to macroeconomic events in the world, investors have been looking for simpler ways to diversify not only their investments but to spread them around different asset classes. Bitcoin, contrary to the belief of most, can be an optimal storage of value than other traditional means such as gold and fiat because it is decentralized and meticulously recorded.
Why Did The SEC Reject The Proposal?
The Securities and Exchange Commission’s primary objective is to minimize risk to the capital markets domestically first and then from abroad. The SEC is under strict regulations to review all submissions so that they comply with the current financial infrastructure in place. Due to events such as the housing market crash of 2008, the SEC takes an extremely conservative approach to non-traditional investments, especially with the tightening of KYP and KYC obligations that firms need to have in order to properly distribute or advise on certain asset classes.
While the rejection is not shocking, it is disappointing to Grayscale. The SEC takes everything on a case-by-case basis and may feel differently than any blanket statements made. For example, ETFs are usually under a lower duty of care than other investment products, as their risk diversification can be easily determined through their holdings of asset classes and sectors. However, as the ETFs are holding only digital assets, including bitcoin, these “buzzwords” throw up alerts for the SEC, and they have subsequently denied them as they pose a much-increased risk of potential fraud and market manipulation.
The Grayscale Retaliation
Being the largest Bitcoin fund in the world, Grayscale filed a lawsuit the same day. Although they acknowledge that the SEC has a more rigorous standard to uphold when it comes to digital assets, they were hoping that the position of the SEC would be different, and to hold the ETF to a higher standard rather than looking at it piecemeal, the same way they would view an individual crypto exchange or asset. Grayscale was hoping to bring Bitcoin, and further assets, to more traditional brokerages and exchanges, so that those who are not participating in predominantly cryptocurrency or NFT marketplaces could participate in their offerings. Grayscale says it is prepared to offer greater investor protection for this introduction into the secondary capital markets.
.Grayscale denounces the inconsistent treatment by the SEC, which allows the trading of certain cryptocurrency futures under close supervision, but denies certain products the same opportunity. On this basis, Grayscale has filed a lawsuit to combat this, saying the treatment is “quite disparate”.
Do They Have a Chance?
The CEO of VettaFi, Todd Rosenbluth, shared his comments on this topic. He believes that it would be extremely difficult to convince the SEC to reverse its decision, based on the potential risk that it would have to the investment public.
It is important to remember that many markets, including Brazil, Europe, and Canada, have allowed some spot products to be traded on the secondary markets.
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