Digital asset management firm Grayscale has achieved a significant legal victory over the United States Securities and Exchange Commission (SEC) in its pursuit to transform its Grayscale Bitcoin Trust (GBTC) into a publicly traded Bitcoin exchange-traded fund (ETF).
The SEC had previously rejected Grayscale’s application in June 2022, citing concerns about inadequate measures to prevent fraudulent and manipulative activities. Michael Sonnenshein, Grayscale’s CEO, expressed the company’s deep dissatisfaction with the SEC’s stance. The digital asset manager responded by filing a petition for review to the United States Court of Appeals for the District of Columbia Circuit.
As per court documents filed on August 29, 2023, Circuit Judge Neomi Rao of the U.S. Court of Appeals ruled in favour of Grayscale. The judge granted the review petition and overturned the SEC’s previous denial of the GBTC listing application. Judge Rao pointed out that the SEC failed to provide a sufficient explanation for its stance, so the review petition should proceed.
However, it is important to note that this court ruling does not automatically guarantee the eventual approval of a Grayscale Bitcoin ETF. The path to obtaining ETF status involves various regulatory processes and further deliberation.
Grayscale Bitcoin Trust stands as the largest over-the-counter traded Bitcoin fund, managing assets worth $14 billion. Notably, its share value had declined by nearly 50% due to the SEC litigation and concerns regarding the fund manager’s relationship with DCG.
In 2022, Grayscale ended its partnership with crypto lender Genesis Global, a subsidiary of DCG. This move came just before Genesis suspended withdrawals due to the collapse of the FTX exchange and market uncertainties. The FTX collapse resulted in a substantial $1.2 billion debt for Genesis. Currently, DCG holds a debt of $3 billion to creditors and is considering a $500 million venture sale to address these obligations.
In the latest development on the issue, on August 29, 2023, DCG reached an agreement with Genesis’s creditors. The agreement, which is subject to court approval, would see creditors potentially recover 70-90% of their funds in USD. DCG will secure new debt to meet obligations, including $630 million in loans due by May 2023 and $1.1 billion due in 2032.
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