Major Victory for Grayscale as SEC Lawsuit Ends in Favor

In a significant development, crypto asset manager Grayscale Bitcoin Trust (GBTC) has emerged triumphant in its legal battle against the United States Securities and Exchange Commission (SEC). The focal point of this legal contest was Grayscale’s endeavor to convert its existing over-the-counter GBTC application into a formally listed Bitcoin Exchange-Traded Fund (ETF).

Legal records from August 29 divulged that U.S. Court of Appeals Circuit Judge Neomi Rao issued a directive favoring Grayscale. Judge Rao not only endorsed the review petition presented by Grayscale but also nullified the SEC’s previous ruling that dismissed GBTC’s aspiration for ETF listing. It’s noteworthy that Judge Rao had previously highlighted the SEC’s deficiency in furnishing a cogent rationale for its disapproval of Grayscale’s proposal. However, it is essential to clarify that this verdict does not provide an absolute assurance of the future inclusion of Grayscale’s spot Bitcoin ETF in the listings.

Reacting to the court’s decision, Michael Sonnenshein, the CEO of Grayscale Investments, took to Twitter to express that their legal team is in the process of meticulously evaluating the court’s opinion.

The history of this legal saga traces back to June 29, 2022, when the SEC rendered its decision to reject Grayscale’s bid to transform GBTC into an ETF. Subsequently, on the following day, Grayscale’s senior legal strategist, Donald B. Verrilli Jr., who previously served as the U.S. Solicitor General, lodged a plea for review with the United States Court of Appeals for the District of Columbia Circuit. At that juncture, Michael Sonnenshein conveyed the firm’s profound disappointment and vehement disagreement with the SEC’s verdict.

Grayscale holds the distinction of being the most substantial over-the-counter traded Bitcoin fund, overseeing assets exceeding $14 billion. Earlier this year, GBTC shares underwent trading at a nearly 50% markdown relative to the net asset value. This was largely attributed to the ongoing legal tussle with the SEC and concerns regarding the creditworthiness of its parent entity, Digital Currency Group (DCG).

Further complications arose as Grayscale terminated significant agreements with its partner and digital currency broker, Genesis Global, in October 2022. Subsequently, on November 16, 2022, Genesis Global suspended withdrawals, citing tumultuous market conditions triggered by the collapse of cryptocurrency exchange FTX. Additionally, the downfall of Singaporean crypto hedge fund Three Arrows Capital compounded Genesis Global’s woes, leaving a $1.2 billion debt from Three Arrows Capital unsettled.

In January 2023, disclosures emerged indicating that DCG is indebted to creditors to the tune of over $3 billion, potentially leading to a sale of a $500 million venture capital portfolio. Furthermore, Genesis Global is burdened with a staggering $900 million owed exclusively to participants of cryptocurrency exchange Gemini’s Earn program.

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