Grayscale is suing the SEC after rejecting an offer to convert bitcoin funds into ETFs

Grayscale, which manages the world’s largest bitcoin fund, said it would sue the US Securities and Exchange Commission after regulators rejected a bid to convert the investment instrument into an exchange-traded fund.

The SEC on Wednesday rejected Grayscale’s application for a spot bitcoin-traded fund, citing that the investment manager did not answer questions about concerns about market manipulation.

The watchdog is concerned that investors will lack adequate protection under the proposal for shades of gray.

Grayscale applied to make the Bitcoin Trust, known as GBTC, an ETF back in October 2021, but the ruling faced several delays. Grayscale had put pressure on the watchdog to step aside, among other things by giving people a way to quickly send emails to express their support.

Immediately after the SEC’s rejection, Grayscale filed a motion challenging the decision to the U.S. Court of Appeals for the District of Columbia Circuit. The trial is led by Grayscale’s senior legal strategist Donald B. Verrilli Jr., a former U.S. Attorney General, and a team of attorneys at the law firm Davis Polk & Wardwell.

Verrilli said the SEC “fails to apply consistent treatment to similar investment instruments, and therefore acts arbitrarily and capriciously in violation of the Administrative Procedure Act and the Securities Exchange Act of 1934.”

The SEC was not immediately available for comment outside of normal U.S. business hours.

Grayscale claims that the SEC’s position is inconsistent in light of previous decisions about the green light for other bitcoin-based ETFs, including those based on futures markets and one that allows investors to short – or bet against – the cryptocurrency.

Cryptooks had set their hopes on the SEC approving the first US spot bitcoin ETF, a move that would potentially open up the cryptocurrency for more institutional investment.

The movement to deny Grayscale’s bitcoin ETF application adds a number of negative news around crypto lately. Earlier this week, the controversial crypto hedge fund Three Arrows Capital collapsed in liquidation.

Bitcoin was traded at $ 20,085 late Wednesday, down 1% in the last 24 hours. Cryptocurrencies have lost $ 2 trillion in over market value since the peak of the bubble in November 2021.