US regulators have denied Grayscale Investments LLC’s bid to convert the world’s largest crypto trust into an exchange-traded fund. The US securities regulator on Wednesday rejected an offer by one of the world’s largest digital asset managers, Grayscale, to list a spot bitcoin exchange-traded fund (ETF) on the NYSE Arca exchange.
The Securities and Exchange Commission (SEC) said in a filing that the ETF’s proposal to list does not meet a standard designed to prevent fraud and manipulative practices and protect investors and the public interest. Grayscale proposes to create ETFs as a conversion of its Grayscale Bitcoin Confidence. Intercontinental Exchange Inc. owns the NYSE Arca.
The SEC said its disapproval rests on “an assessment of bitcoin, or blockchain technology more generally, of utility or value as an innovation or investment.”
The rejection ended Grayscale’s eight-month campaign to convert and opened the door to potential legal action. Grayscale CEO Michael Sonnenshin said in March that “all options are on the table” should the SEC not allow the conversion, and the firm in June called on former US Solicitor General Donald Verilli to be “ready for all possible consequences”. appointed to do.
Grayscale said in response it had filed suit against the regulator, arguing that the SEC violated the Administrative Procedure Act and the Securities Exchange Act.
In a statement it pointed to the SEC’s approval of an ETF based on bitcoin futures. “If regulators are comfortable with ETFs that hold derivatives of a given asset, they should logically be comfortable with ETFs that hold the same asset,” it said.
In a May meeting with US regulators, Grayscale argued that converting to an ETF would unlock up to $8 billion in value for investors. The SEC has received thousands of letters in support of the conversion after Grayscale launched a campaign asking the SEC for comment.
Rejecting more than a dozen proposals for spot bitcoin ETFs over the past year, the SEC has focused on the lack of watchdog-sharing agreements with a regulated market of significant size related to the underlying asset.
The price of bitcoin, the largest digital currency, is down nearly 70% from its November high of nearly $69,000. Other cryptocurrencies and crypto-related stocks have fallen in recent months as investors abandoned riskier assets in response to high inflation and policy tightening by major central banks.
Issuers of spot bitcoin ETFs rejected by the SEC in recent months include Fidelity, Skybridge and Valkyrie, all of which have sought to provide easier exposure to the digital currency.