DC Court of Appeals fast-tracks oral arguments in grayscale lawsuit against SEC

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The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin ETF, citing the investment manager’s failure to answer questions about concerns about market manipulation.

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The District of Columbia Court of Appeals has set a date to hear oral arguments in Grayscale’s lawsuit challenging the Securities and Exchange Commission’s decision to deny the conversion of its Grayscale Bitcoin Trust into an exchange-traded fund.

Both parties will present their cases in court at 9:30 a.m. ET on March 7, according to a court order filed January 23. Grayscale previously expected oral argument to begin in the second quarter.

Investors are sitting on the fringes of the crypto market after a difficult 2022, driven by tough macroeconomic conditions as well as the destruction caused by the demise of Terra and the bankruptcies of Three Arrows Capital, Celsius, Voyager and FTX. Crypto lender Genesis, Grayscale’s sister company, filed for bankruptcy on Thursday.

Still, crypto investors are eagerly waiting to see the SEC approve a U.S. spot bitcoin ETF and not just as a way to open up the crypto market to more institutional investment.

Investors are increasingly concerned about the harm GBTC could do to shareholders; the shares trade at an increasing discount to net asset value (currently around 40%) and the structure of the trust is such that the shares cannot be redeemed. Many agree that the SEC giving the green light to Grayscale to convert the trust into an ETF would be the ideal route for investors.

GBTC, which had $14.5 billion in assets under management on Monday, was the first crypto product that investors could trade on their brokerage accounts to gain exposure to bitcoin. It was launched in 2013, long before the approval of bitcoin ETFs in Canada or bitcoin futures ETFs in the United States.

Grayscale charges a 2% annual fee to investors, making it a cash cow for parent company Digital Currency Group, run by Barry Silbert. Silbert has been criticized by many crypto investors, most recently Gemini’s Cameron Winklevoss.

In recent weeks, Fir Tree Capital Management sued Grayscale for potential mismanagement and conflicts of interest of GBTC.

Valkyrie CIO Steve McClurg and Osprey Funds CEO Greg King have both urged Grayscale to step down as GBTC’s sponsor and name their funds the sponsor instead to give shareholders a better path to lower management fees. and the implementation of a buyback program.

Grayscale filed its lawsuit against the SEC in June 2022 after the agency denied its request to convert its bitcoin trust, better known by its ticker GBTC, into an ETF. The company decided to sue the ETF, which would be backed by bitcoin rather than bitcoin derivatives, after the SEC approved ProShares’ futures-based bitcoin ETF in October 2021.

The decision suffered multiple delays, but the SEC ultimately denied the request last summer, citing Grayscale’s failure to address questions related to concerns about market manipulation and investor protection.

CNBC’s Ryan Browne contributed reporting

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