Grayscale CEO Sonnenshein Says ETF Court Ruling May Come by Third Quarter

David Pan and Sonali Basak, Bloomberg News

Michael Sonnenshein, chief executive officer of Grayscale Investments LLC, speaks during a Bloomberg Radio interview at the Greenwich Economic Forum (GEF) in Greenwich, Connecticut, U.S., on Tuesday, Sept. 21, 2021. The GEF brings together leaders in global finance, business, media and government for global investment forums to discuss the economic implications of the defining issues of our times. Photographer: Jeenah Moon/Bloomberg , Bloomberg

(Bloomberg) -- Grayscale Investments anticipates that a federal appeals court may decide by the third quarter whether to overturn the US Securities and Exchange Commission’s rejection of its application to convert its Bitcoin trust into an exchange-traded fund.

The share price of the Grayscale Bitcoin Trust, which trades under the ticker GBTC, rose for a second day. It has jumped about 11% since oral arguments in the case were held yesterday in Washington.

“We are really appreciative as an organization of the opportunity to have this case heard in the DC circuit,” Michael Sonnenshein, chief executive officer of Grayscale, said during a Bloomberg Television interview on Wednesday. “The receptivity has been really positive from investors.”

If the case is unsuccessful, Grayscale will seek to appeal the decision up the Supreme Court, he reiterated. And if that fails, the firm will discuss the possibility of getting relief from tender offer rules with the SEC, Sonnenshein said.

The SEC rejected Grayscale’s plan to convert its roughly $14 billion Bitcoin trust to an ETF in June, saying crypto markets are too ripe for fraud and manipulation. Grayscale sued, asking the DC Circuit Court to overturn a decision the company called arbitrary and discriminatory because the SEC had already approved ETFs that track Bitcoin futures.

The court case is a major test for the SEC, which has taken an aggressive stance toward the crypto industry, including through increased enforcement following the collapse of several companies, including FTX, last year. The SEC has claimed that most digital assets are securities that have to be registered with the agency.

The trust has effectively operated as a closed-end fund that didn’t redeem shares when prices fell, which left the trust trading at discounts of more than 40% to its underlying Bitcoin. The structure of an ETF allows shares to be created and redeemed to keep pace with shifting demand.