Grayscale’s request to convert GBTC to a Bitcoin ETF is denied by the SEC

Grayscale’s request to transform its flagship product into a spot-based bitcoin ETF was refused by the SEC.

Grayscale’s request to transform its flagship product into a spot-bitcoin exchange-traded fund was refused by the Securities and Exchange Commission (SEC).

Today, the securities regulator filed a rejection order for the conversion of Grayscale’s Bitcoin Trust (GBTC) after granting the applicant many extensions.

In its denial notice, the agency stated: “This ruling rejects the requested rule change as amended by Amendment No. 1.” Under the Exchange Act and the Commission’s Regulations of Practice, NYSE Arca had the burden of showing that its proposal complies with Section 6(b)(5), which states that a national securities exchange’s rules must be “intended to prevent fraudulent and manipulative actions and practises” and “to safeguard investors and the public interest.”

As for the issuer Grayscale, it has already tried to counter this point

In response to previous spot ETF denials, it argued in a letter to the SEC that its decision to permit futures products but reject spot offers may violate the Administrative Procedures Act. Grayscale and other proponents contend that it is contradictory to prohibit a spot product on the basis of weak safeguards against market manipulation when futures products are priced based on the underlying market.

Grayscale prepared for approval via a contract with Jane Street and Virtu to close the discount on GBTC upon conversion before the decision. This transaction cannot proceed without permission.

Grayscale said at the time that it was ready for all conceivable outcomes and had increased its legal resources in advance of the decision. Grayscale said before the decision that it was dedicated to transforming the product.

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