Greyscale files lawsuit against SEC over denial of listing

Grayscale has filed a lawsuit against the US Securities and Exchange Commission after the US regulator rejected the group's bid to convert the world's largest crypto investment vehicle into a Wall Street-listed fund.

The company filed a petition for review with the District of Columbia Court of Appeals on Wednesday to challenge the SEC's denial of its request to convert its $40 billion Bitcoin trust into an exchange-traded fund.

In a filing, the SEC argued that NYSE Arca - which sought to list Grayscale's product - had failed to meet requirements "designed to prevent fraudulent and manipulative acts and practices" and "protect investors and the public interest."

The rejection came as the SEC debated whether U.S. ETFs would be allowed to hold Bitcoin instead of derivatives linked to the digital token for the first time.

The regulator – which has increased scrutiny of the crypto sector under Chairman Gary Gensler – had opposed these types of products, fearing that the tokens would be traded on unregulated exchanges with surveillance and manipulation risks.

The SEC has approved ETFs that hold crypto futures, but these instruments are traded on regulated platforms.

Michael Sonnenshein, Grayscale's chief executive, said in a statement that he was "deeply disappointed" and "vehemently disagreed" with the SEC's decision. He added that Grayscale will continue to “leverage the full resources of the company to advocate for our investors and the fair regulatory treatment of Bitcoin investment vehicles.”

The SEC did not immediately respond to requests for comment.

The regulator's decision dealt a blow to crypto players hoping for Grayscale to launch a spot Bitcoin ETF. Previous applications from several competitors for similar instruments were unsuccessful.

Donald Verrilli, Grayscale's chief legal strategist, said in a statement that the SEC "does not apply consistent treatment to similar investment vehicles and therefore acts arbitrarily and capriciously."

Grayscale originally filed an application to convert its Bitcoin Trust in October and made a renewed push this year after the SEC accepted the Teucrium Futures crypto instrument under rules that would govern spot Bitcoin ETFs.

Craig Salm, Grayscale's chief legal officer, told the Financial Times in April that after the Teucrium approval, the SEC "effectively loses the ability to rely on the distinction" between rules for futures ETFs and spot ETFs as a reason to reject funds related to Bitcoin.