Grayscale: Decision In Bitcoin Spot ETF Lawsuit Vs. SEC Not Before Fall 2023

The fate of Genesis Trading, Digital Currency Group (DCG) and the Grayscale Bitcoin Trust (GBTC) continues to hang by a thread after Cameron Winklevoss took another step in the escalation over Gemini Earn customer funds with a new open letter on Tuesday. For Grayscale, however, the current battle is also about continuing to fight on the front lines against the U.S. Securities and Exchange Commission.

Craig Salm, chief legal officer (CLO) at Grayscale, revealed in a Twitter thread today that Grayscale will “soon” file the next brief in its lawsuit against the SEC, which is refusing to convert Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF.

This would close GBTC’s massive discount and remove a concern for the beleaguered DCG group. According to Salm, the case is moving forward “swiftly,” although the ultimate timing of a decision is uncertain. Oral arguments could come as early as Q2, while a final decision before the DC Circuit Court of Appeals could come by fall.

Grayscale Remains Optimistic

In the lengthy thread, Salm explains that Grayscale remains positive that the appeals court will approve the conversion of GBTC into a spot ETF because it is about “fair and equal treatment under the law.”

“That means events and speculation surrounding Terra/LUNA, 3AC, Celsius, Voyager, FTX, Alameda, BlockFi, Genesis Capital, Gemini, DCG, or anyone else are *not* relevant to the ultimate question the Court will have to answer,” says Grayscale’s CLO, who also states that the conversion is the best solution for all GBTC shareholders.

Grayscale expects that the conversion to a spot Bitcoin ETF will remove the current discount to NAV and unlock over $4 billion in value.

An ETF is unquestionably the best long-term way for GBTC to track the value of its Bitcoin. This has always been the roadmap for GBTC (and ETHE and our other crypto investment funds). That’s why the full resources of the firm are behind this effort.

According to Salm, Grayscale has “the best lawyers” representing GBTC shareholders before the DC Circuit Court of Appeals, including Don Verrilli, former Solicitor General under the Obama administration (the lawyer representing the U.S. government before the Supreme Court), his team at MTO, and Davis Polk.

All Options For The Bitcoin Trust Are On The Table

While Salm expresses optimism, he also makes it quite clear that Grayscale is exploring alternative ways to return capital to GBTC shareholders if the lawsuit against the SEC is unsuccessful.

These options include a tender offer for a portion of GBTC’s shares, given certain relief and approvals from the SEC. Although this is not the favored goal, however, it may be necessary for some circumstances, Salm said.

Pursuing an alternative path would deviate from $GBTC’s long-held ETF aspirations and would not be an ideal outcome, […] Nonetheless, we made this commitment in continuing to prepare for all possible $GBTC scenarios and to provide clarity for investors.

At the same time, Grayscale’s CLO pointed out that the company cannot simply redeem shares. Anyone calling for this “doesn’t understand the complexities of securities laws and its tender offers rules (distinct from Reg M).”

Despite the ongoing uncertainty surrounding Grayscale and DCG, the Bitcoin price is experiencing a rally today, likely related to expectations for a low inflation print. Today at 8:30 am EST, US CPI data for December will be released.

At press time, BTC was up 4.5% over the last 24 hours and stood at $18,172.