Here’s Everything You Need to Know About the Latest Grayscale-SEC Developments
CEO Michael Sonnenshein walked away “very encouraged” after Grayscale made its first oral arguments in its lawsuit before the Securities and Exchange Commission (SEC) on Tuesday.
The executive on Wednesday spoke at the heart of Grayscale’s argument and why the SEC’s refusal to approve a bitcoin spot ETF was “arbitrary and capricious.”
The relationship between Bitcoin Futures and Spot
During an interview with CNBC on Wednesday, Grayscale’s CEO reiterated his company’s key case: the SEC continues to approve bitcoin futures ETFs while denying bitcoin spot ETFs.
After approving the first bitcoin futures ETF in October 2021, the SEC rejected various spot ETF applications – including Grayscale’s application – claiming that fraud and manipulation in these markets could not be detected.
Grayscale, meanwhile, has claimed that a monitoring agreement with the regulated CME bitcoin futures market — which has a 99.9% correlation rate with the bitcoin spot price — should suffice.
“We have been consistent throughout the process: the ETF application, the litigation, the hearings,” Sonnenshein said. “We hope that the court will be convinced by these arguments.”
On Tuesday, the SEC argued in the Court of Appeals that there was insufficient evidence that the futures market accurately reflects potential spot market manipulation — but judges were skeptical of their claims. The market interpreted the hearing as a win for Grayscale, as GBTC — the firm’s behemoth Bitcoin Trust — has pumped around 16% since it was held.
Sonnenshein fought for years to convert that trust into a Bitcoin Spot ETF, which would allow GBTC shares to closely track Bitcoin’s price. Some have claimed that more regulation of the crypto industry is needed before the transition can take place – but Sonnenschein dismissed that premise:
“No new legislation is needed to bring GBTC further into the regulatory arena,” he told CNBC. “Putting it in an ETF wrapper would further protect investors.”
The Alameda Trial
As Grayscale launches its offensive against the SEC, the firm is flanked with indictments from Sam Bankman-Fried’s bankrupt crypto trading arm Alameda Research.
Working with the FTX debtors, the company is requesting that Grayscale make its GBTC shares exchangeable for the underlying Bitcoin to help the bankrupt company recover some of its lost assets within the fund. It has also been alleged that Grayscale breached its trust arrangements by charging “exorbitant” management fees that have raised the fund over $1.3 billion.
sunshine argued that the lawsuit was a “misguided complaint” and that GBTC’s high fees are due to the “constructs” surrounding the operation of the investment vehicle, which are “distinct from equity-based products.”
“It’s the best long-term product structure and ultimately the one that will unlock the most value for investors, including the likes of Alameda,” he said.