Coinbase supports Grayscale’s lawsuit for its spot Bitcoin ETF
Coinbase supports Grayscale’s lawsuit for its spot Bitcoin ETF

Coinbase supports Grayscale’s lawsuit for its spot Bitcoin ETF

By Vincenzo Cacioppoli - 20 Oct 2022

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Grayscale, the world’s leading cryptocurrency fund, has decided to file a lawsuit against the SEC for the failure to approve its new spot Bitcoin ETF. The case refers to the application sent to the SEC for a new spot Bitcoin ETF fund. However, the application was rejected, just like the others submitted, by the regulator of the American Stock Exchange, headed by Gary Gensler.

The issue is always related to a very hostile attitude by the SEC toward investment products that would invest directly in the underlying Bitcoin. The SEC chairman has always maintained his very firm stance against products related to digital assets that would not have the approvals that are intended for securities.

According to the SEC, as can be clearly seen from the lengthy lawsuit brought against Ripple, most of the tokens put on the market would be considered securities, and therefore would have to undergo the strict rules established for all products such as stocks and bonds.

After the rejection it received from the SEC, Grayscale decided to take legal action, and in its lawsuit it is gathering many endorsements from different players in the crypto world.

Coinbase teams up with Grayscale for approval of its ETF

Among them is the US exchange Coinbase, which has submitted an amicus brief in support of Grayscale Investments’ lawsuit.

Amicus brief, or amicus curiae, is that document filed by a company, organization or individual that is not involved in a court proceeding and that believes it can offer expertise that could be valuable in prevailing in a court case, such as the one filed by Grayscale.

According to Coinbase, which filed the document in the federal court of the District of Columbia, there would be a real persecution by the SEC against spot Bitcoin products. Since the early years, there would already be about 20 such ETFs rejected by the SEC. Precisely last week came a new rejection by the regulator of the American stock exchange, which rejected the issuance of a Bitcoin ETF presented by Wisdomtree.

As the largest cryptocurrency product, with about $2 billion in assets, Grayscale offers The Grayscale Bitcoin trust. The company’s goal was to turn this trust precisely into a Bitcoin ETF. But the SEC denied approval.

In addition to Coinbase, the Blockchain Association, the Digital Chamber of Commerce and the Coin Center have also supported the fund in its legal battle against the SEC. Blockchain Association members include Circle, Jump, Kraken and Ripple among other companies, while the Digital Chamber of Commerce counts Binance.US, Citigroup, Fidelity, Goldman Sachs and Mastercard among its members. Whereas Coin Center is an educational and research institute focused on public policy issues related to cryptocurrencies.

The argument brought by these business groups reiterates how the SEC found no fault with, for example, approving dozens of ETFs on Bitcoin futures, which would be very similar to the one presented by Grayscale but riskier for investors.

Grayscale files appeal

The legal appeal filed with the court states:

“This approach has enabled the commission to pick winners and losers without having to account for its reasoning to the interested public or to the courts, thereby depriving investors of the freedom to make their own investment choices and businesses of the certainty they need to innovate and meet investor demand.”

The 100-page document goes on to say that the regulator would be taking “arbitrary and capricious” action as defined by the Administrative Procedure Act (APA). 

In this legal battle, the fund has also allegedly engaged a well-known attorney, who has already served on the White House legal team under President Barack Obama.

The US Chamber of Commerce wrote in the document:

“The APA undoubtedly affords administrative agencies leeway when making policy judgments entrusted to them by Congress. But the APA does not give an agency a blank check to make decisions that affect large sectors of the economy through orders that ignore statutory mandates, draw arbitrary distinctions and rest on broadly applicable policy judgments made in the shadows.”

Moreover, some former regulators and former members of the SEC also appear in this lawsuit (just as had happened indirectly in the case against Ripple) to come to the crypto company’s rescue. 

Two former SEC commissioners (including former chairman Harvey Pitt), former commissioners of the Commodity Futures Trading Commission, a number of senior academics and former auditor Brian Brooks have also filed their own amicus briefs in favor of Grayscale. 

In this new memoir, they define as completely arbitrary the SEC’s positions against the fund’s proposal to launch an ETF, which they found to be entirely legitimate.

Yet the SEC and especially its combative chairman Gensler do not seem to be fazed at all by these pro-cryptocurrency stances. Gensler on several occasions has reiterated that he believes that a substantial 80% of cryptocurrencies would have to be considered securities. And that is why they must be monitored by the regulator and sanctioned in the case of selling tokens without proper authorization.

The SEC takes a stand against Ethereum as well

There have been rumors in recent days that the SEC is taking a very close look at Ethereum after its Merge update that would kick off the new Proof of Stake consensus.

The issue would concern the staking activity, which Gensler said could be equated with lending and thus regulated accordingly. The SEC would like to impose KYC (Know Your Customer) rules on Ethereum staking as well. A set of rules that would make the whole procedure much more complicated.

So after an attitude that it is certainly not an exaggeration to describe in some cases as bordering on persecutory on the part of the SEC toward the industry, now this lawsuit filed by Grayscale could represent the cryptocurrency world’s first major “counterattack” against the regulators. And some say this attempt could get a significant boost from a likely favorable court decision in favor of Ripple in its long-running lawsuit defending itself against the charges of the SEC.

Vincenzo Cacioppoli

Vincenzo was born in Genova but lived most of his life in Milan. He has a degree in political science. He is a journalist, blogger, writer, and marketing and digital advertising expert. After a long experience in traditional marketing, he started working with the web and digital advertising in 2011, creating a company called Le enfants. Passionate about the web and innovation, in 2018 he started exploring the topics related to blockchain technology and cryptocurrencies. Independent cryptocurrency trader since March 2018, he now collaborates with companies in the sector as a content marketing specialist. In his blog., he has long been primarily focused on blockchain, which he considers to be the greatest technological innovation after the Internet. His first book about blockchain and fintech is scheduled for release in November.

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