Grayscale sues U.S. SEC for rejecting its bitcoin ETF application

© Reuters. FILE PHOTO: A bitcoin representation is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier/File Photo

By Akriti Sharma and John McCrank

(Reuters) - Grayscale Investments said on Wednesday it had sued the U.S. Securities and Exchange Commission after the regulator rejected the digital asset manager's proposal to list a spot bitcoin exchange-traded fund (ETF).

The SEC had said Grayscale's proposal to list the ETF did not meet the standard designed to prevent fraudulent practices and protect investors. (https://

"If regulators are comfortable with ETFs that hold derivatives of a given asset, they should logically be comfortable with ETFs that hold that same asset," Grayscale said, referring to the SEC's approval of ETFs based on bitcoin futures.

Grayscale, one of the world's biggest digital asset managers, had proposed creating the ETF as a conversion of its Grayscale Bitcoin Trust (GBTC.PK). It was seeking to get the ETF listed on NYSE Arca, which is owned by Intercontinental Exchange (NYSE:ICE) Inc.

In rejecting more than a dozen proposals for spot bitcoin ETFs over the past year, the SEC has focused on a lack of surveillance-sharing agreements with a regulated market of significant size relating to the underlying assets.

Issuers of spot bitcoin ETFs rejected by the SEC in recent months include Fidelity, SkyBridge and Valkyrie, all of which sought to provide easy exposure to the digital currency.

The SEC's rejection of Grayscale's application did not rest on "an assessment of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment," the regulator said.

The price of bitcoin, the largest digital currency, has plunged more than 70% from its high of around $69,000 in November.

Other cryptocurrencies and crypto-related stocks have also declined in recent months as investors dumped riskier assets in response to high inflation and policy tightening by major central banks.