Aug 30, 2023

The SEC must review its rejection of Grayscale Investments' attempt to convert the Grayscale Bitcoin Trust (GBTC) into an ETF, a federal court ruled.

Video transcript

Hopes are rising for the approval of a Bitcoin ETF. Yesterday. A Federal Appeals Court ruled that the SEC must review Grayscale Investments application to launch the first Bitcoin ETF. Joining us now is Grayscale Investments Chief Legal Officer Craig Sam. Welcome to the show. Craig. Thank you for having me. It's great to be here. Awesome. Now you got to tell us about what is going on at gray scale. What is the mood like after this win in the appeals court? The mood here is quite positive. Yesterday represents a major win for gray scale, our shareholders and really the whole crypto community. It's the culmination of something that started back in 2013 when we first launched G BT C eventually to convert into an exchange traded fund for the sake of brevity. I'll fast forward to October 2021 when we first refilled to converge EPTC into an ETF. That was the very same day that the first Bitcoin futures ETF started trading in the US. What followed was a record breaking 11.5000 comment letters to the SEC, all expressing positive views on the application being approved. Unfortunately, the following June we were denied by the SEC. And on that very same day, we filed a lawsuit challenging that decision. The basis for our argument is that if the commission is ok with Bitcoin futures, which are a derivative of Bitcoin itself, then they really should be ok with Spot Bitcoin following that lawsuit, they were briefs acu briefs, oral arguments all leading up to yesterday were the court ruled by unanimous decision in favor of Gray scale vacating the S ECs denial. So a big day for us and really for our shareholders, can I just ask you straight up? Do you see this as an approval for the first Bitcoin? ETF? It's certainly validation for Bitcoin and Bitcoin ETF. S. What the decision said is that this basis, the SEC has been denying other Bitcoin TFS, specifically fraud and manipulation in the underlying spot. Bitcoin markets is not a justifiable basis for continuing to deny spot Bitcoin TFS. The reason for that is because the Bitcoin futures market is inextricably linked to the underlying Bitcoin market. So again, if you're OK with one, you really have to be ok with the other. So yesterday is a big win, but it does not mean that GP TC will become an ETF today. Um It's important to note there is still a 45 day process where the commission has time to review the decision and decide if they want to appeal. We have to respect that process as a part of the federal rules, the procedure. Uh So that's what we're really just focused on. Now. Have you heard? Sorry, just to follow up because what happened was that, you know, this was actually a review petition. You had petitioned the court to review the Se C's decision. You had not petitioned the court to overturn the decision and I know that that might be legal jargon. Uh Could you just explain the difference if at all there is one? And, and typically in these kind of cases, do you always just petition the court for a review and not to overturn something? Certainly. Yeah. So, you know, we're always focused on making sure the market and our investors understand the minutia of these legal processes. What yesterday's decision was, was a vacating of the S ECs denial. Still there is this time period where the SEC can petition for a rehearing of that decision. That's that 45 day window that I spoke about. Otherwise, we really just focus on re engaging with the SEC on a constructive basis. We have a history of doing that for G BT C and all of our products, but we definitely going to be working constructively with the SEC to get this over the finish line. So that's exactly my point. You from the starting point, you were not trying to be adversarial, you were trying to work with them. You weren't saying over the decision, you were asking the court to tell the SEC to review it. Is that correct? Is that a correct interpretation? We were seeking the court to review the denial of the decision, which was on that basis of the underlying market structure being susceptible to fraud by manipulation. The decision yesterday showed that the court by unanimous decision agreed with our reasoning. And so now what the court has said is that the commission can no longer deny on that basis. Still, we have to wait for this process to see if the commission will seek a rehearing of that decision. But then going back to the SEC where they can, you know, really have three decisions, they can make. Approve G DC as an ETF, which obviously we believe is a decision they should make with other spot Bitcoin TFS. Uh They could come up with another reason for denying spot Bitcoin ETF S although unclear what that really would be given yesterday's outcome. And then thirdly, they could also undo the futures based ETF S. Um I think that's not the right decision either because that would really cause even more disruption and harm, potential harm to investors given that these products are trading out there with a. Um, and so on. If the SEC does come up with another reason or decides to appeal, are you prepared to continue the fight? We absolutely are going to do whatever it takes to convert GP TC into an ETF. That's what we said from day one when we filed the application the same day, the futures based ETF started trading when we filed the lawsuit the same day we were denied. So our investors know that we are doing whatever it takes to get over the finish line. But again, I have to restate that there is this time period, 45 days where the commission can seek the rehearing. Otherwise, we are laser focused on re engaging on a constructive basis. You know, you talk about these constructive discussions with the SEC and we've heard from firms in the industry that the discussions with the SEC are not always constructive or productive and often they end up in cases like the one we're talking about today. What's your discourse like the SEC been like, have you heard from them since the appeal for, since the win? Sorry. Yeah. So you know, the SEC and really any regulator dealing in the digital asset space does have a very tough job. It's a new technology, it's a new asset class. There's a lot of ways to utilize it. A lot of different market participants. So I really do respect that they are making an effort to fit crypto within the regulatory framework. There's a lot of different issues, things like what tokens are, securities versus commodities, how should intermediaries be regulated. But our particular issue, the spot Bitcoin ETF issue is extremely simple and straightforward. You have Bitcoin, the largest digital currency. It is a commodity every regulator has agreed with that position, married with the ETF wrapper, which is a very traditional investment vehicle that the market has come to know over the last 30 years. So it's a very simple, straightforward argument. It's why we chose to file this lawsuit in the first place, which was not an easy decision. You know, anytime you sue your regulator, it's not something that, you know, anyone should really take lightly. But it was a professional disagreement that we had with the commission and on behalf of our investors, we felt it was the right thing to do. So we'll continue to work with them to convert G BT C into an ETF and just get that over the finish line. Yeah. And you had, you know, very clearly asked uh the SEC if it did go ahead and approve Spot Bitcoin ETF S that it should do. Uh it should actually approve all of them together. Uh We know about the trade five giants like Black Rock and Fidelity, their applications for Spot Bitcoin Efs. Does the result uh yesterday, does it change that timeline and your opinion on that timeline? Because you said you wanted it all to be, you know, given the go ahead in one go. Uh because anything else would be unfair, it's difficult to speculate on timelines. I'm really focused on G BT C of the other filers. We're the only one with an actual product G BT C today represents billions of dollars of Bitcoin and represents nearly a million investors across all 50 states. It is trading tens to hundreds of millions of dollars in daily trading volume. If you compare it to other commodity based ETF S, it's in the top 10 on a um and trading volume basis. However, because it's not an ETF, it is not being able to track the value of its underlying Bitcoin, converting it to an ETF would allow that value to be realized by investors. That's why I think the stakes are just a lot higher for us and why we, you know, made the decision to file the laws in the first place and why we're really focused on getting this done as quickly as possible. Um I think yesterday's decision helps us and other spot Bitcoin TFS. And so right now, again, we're really focused on that 45 day window and otherwise engaging with the commission to convert G BT C into an ETF. You know, a lot of the analysts that come on the show are calling for that ETF approval as the next catalyst for uh Bitcoin. We saw the price bump on the news of this win yesterday. How do you think the approval of an ETF is going to affect the markets? ETF S are access vehicles. They've shown that for every other asset class, they enable investors who aren't able to or do not want to deal with the asset directly, gain their exposure through a brokerage account, just like any other stock or index or other vehicle. That's certainly not everybody there is ways to access and hold Bitcoin direct. But there is a whole universe of investors that really need the ETF W rapper to do that conversion of GP TC into an ETF will open up the product for those types of investors, which is really good for the overall Bitcoin community because, you know, as you know, Bitcoin's network effect, the more people are using it, the better the asset does and the more useful it becomes, you know, just take us inside what it was like at Grays skill. Once we knew what the judge actually said that this was a victory for gray scale. Um You know, and, and the other thing you, I think mentioned the 45 day window about maybe 45 times and I'm being sarcastic, of course, uh in this answer, but I do want to ask you, what is it that you actually do in these 45 days? Like, what do you really do? Because so two questions, what was the party like? And what do you do in 45 days? Yeah. So your first question, we are extremely excited about this tremendous event. Uh It's something that, as I said, we've been working on since the day GP TC launched in 2013. This is a real pivotal moment, but there is still work to be done. GB DC is not ETF today. So our job is not yet done, but we definitely appreciate the patience our shareholders have had for us as we focused on making this conversion ultimately happen. Um But yeah, we excited, our shareholders are excited and so it's definitely a good day, but again, work needs to be done. Um The other question that you asked about this 45 day window, you know, we have to respect and honor the process. The reason why it's there is to give the losing party the opportunity to read the opinion. Digest it, decide whether they want to seek a rehearing. And we just have to honor the process. Otherwise, again, just laser focus on re engaging constructively with the SEC. Is there any world in which you reach out to the SEC instead of the SEC reaching out to you in the next 45 days, there's prescribed channels for how we engage with any regulator. Um You know, everybody knows that process. And so we really do have to first wait and honor this 45 day window and then we can focus on re engaging with the commission. Mhm. All right, Craig, we're gonna have to leave it there. Thanks so much for joining the show this morning and congratulations on the win. Thank you. That was Gray Scale Investments, Chief Legal Officer Craig. So Gray Scale and Coin Desk are both owned by the digital currency group.

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