The issue has also become “kind of a hot potato,” Ms. Fuhr said. Following the SEC’s decision, Grayscale Investments on June 29 initiated a lawsuit against the SEC in the U.S. Court of Appeals for the District of Columbia Circuit. The case could take years, and even if the court were to decide in Grayscale’s favor, an appeal would likely follow, she said.
“So, to get an actual decision based on going and fighting in the courts just seems an awkward way to go about it,” she said.
Todd Rosenbluth, head of research at VettaFi LLC, a data and analytics provider, said the SEC under Chairman Gary Gensler – who was sworn into office last year — has repeatedly cited concerns regarding fraud and manipulation in spot bitcoin as well as insufficient investor protections were there to be a spot bitcoin ETF.
“And so, until either the leadership at the SEC changes or the facts change, and asset managers are able to demonstrate that there are sufficient investor protections, I think every proposal to launch a spot bitcoin ETF will continue to be disallowed,” Mr. Rosenbluth said.
As for Grayscale’s decision to sue the SEC, Mr. Rosenbluth said he would agree that Grayscale is “taking an unusual approach” in its attempt to realize its goal of converting the Grayscale Bitcoin Trust into a spot bitcoin ETF.
The Grayscale Bitcoin Trust, which has assets under management totaling $14.5 billion, began operations in September 2013 and was structured intentionally from inception to eventually convert into an ETF pending U.S. regulators’ approval, according to information available on Grayscale’s website.
Grayscale has strived to work “collaboratively and proactively with the regulatory community,” CEO Michael Sonnenshein said in an interview.
“And certainly, through the lens of acting as fiduciaries, (we) have continued to act in an educational capacity to the regulatory community, to policymakers, etc.,” he said, adding that Grayscale’s efforts have spurred “a ton of movement in Washington” around engagement on crypto-related issues.
Grayscale has been advocating on behalf of investors because it knows that converting to an ETF would afford investors greater protections. The fund is held by nearly a million investor accounts in the U.S. spread across all 50 states, he said.
Given that investor protection is among the SEC’s core tenets, having the decision regarding the Grayscale Bitcoin Trust come out negatively meant that “the only natural next step in pursuit of what we want for our investors is to take it to the judicial system,” Mr. Sonnenshein said.
“That’s a process that just kicked off very recently but one that we’re confident in,” he said.
Grayscale has been guided by its counsel to believe that the lawsuit could be “a nine-to-12-month process, perhaps shorter, perhaps a little bit longer,” he said.
Regulators like the SEC “do get sued,” Mr. Sonnenshein said.
“These suits are not decisions that we or I’m sure others take lightly,” he said. “But these are in fact occurrences that are somewhat common.”
The SEC’s five commissioners, who are nominated by the president with the Senate consent, have staggered five-year terms. The chairman and commissioners may continue to serve for about 18 months after terms expire if not replaced before then. No more than three commissioners can belong to the same political party.
