Grayscale files brief in ETF suit against SEC, oral arguments may come within months

January 13, 2023 Coin Telegraph

Grayscale appealed the SEC’s denial of its application to create a spot BTC ETF in June; the case “is moving swiftly,” according to the Grayscale chief legal officer.

Grayscale filed a reply brief in its appeal of the United States Securities and Exchange Commission (SEC) denial of its application to convert its $12-billion Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin (BTC) exchange-traded fund (ETF). The brief, filed in the District of Columbia Circuit Court, addressed points made in the SEC reply brief filed in December and restated its own arguments.

The SEC based its decision on findings that Grayscale’s proposal did not sufficiently protect against fraud and manipulation. The agency had made similar findings in a number of earlier applications to create spot-based BTC ETFs.

1/ As part of our suit challenging the SEC's decision to deny $GBTC conversion to a spot #bitcoin #ETF, @Grayscale just filed our Reply Brief with the DC Circuit Court of Appeals. Here’s what you need to know:
— Craig Salm (@CraigSalm) January 13, 2023

Grayscale countered the denial with claims in court that the SEC had acted arbitrarily in treating spot traded exchange-traded products differently from futures traded products. “There is a 99.9% correlation between prices in the bitcoin futures market and the spot bitcoin market,” Grayscale stated in its brief. It also claimed the SEC had exceeded its authority:

“The Commission is not permitted to decide for investors whether certain investments have merit – yet the Commission has done just that, to the detriment of the investors and potential investors it is charged to protect.”

Grayscale chief legal officer Craig Salm said in a tweet, “The case is moving swiftly. While timing is uncertain, oral arguments may be as soon as Q2 [2023].” Grayscale applied to the SEC in October 2021, and the agency denied that application on June 29.

Fir Tree Capital Management sued Grayscale on Dec. 6 demanding, among other things, that Grayscale give up its appeal of the SEC decision. “That strategy will likely cost years of litigation, millions of dollars in legal fees, countless hours of lost management time, and goodwill with regulators,” the complaint read.

Grayscale is owned by the Digital Currency Group, which is currently undergoing a financial squeeze.

DCG chief Barry Silbert pens letter to shareholders, community reacts

January 11, 2023 Coin Telegraph

Barry Silbert

Barry Silbert’s letter to shareholders came just hours after Cameron Winklevoss wrote an open letter accusing him of defrauding customers.

The crypto community woke to another drama-filled day after the Digital Currency Group (DCG) chief’s letter to shareholders went wrong. DCG CEO, Barry Silbert, penned a letter to the shareholders on Jan. 10, reflecting on the state of the crypto market and the growing fear, uncertainty and doubt (FUD) around the company. DCG is the parent company of crypto lending firm Genesis Global Capital and Grayscale, the world’s leading crypto asset manager.

In the letter, Silbert addressed the growing issues around DCG and its subsidiaries owing to the bear market and FTX contagion. He said that bad actors and the implosion of leading crypto companies had wreaked havoc on the industry. He noted, "DCG and many of our portfolio companies are not immune to the effects of the present turmoil.”

I’m incredibly proud of the role that DCG & I have played as pioneers & builders over the past decade. We’ve invested in >200 companies that have developed & shaped the industry, we’ve helped build the first publicly-quoted BTC fund, the largest asset manager in the space..(2/10)
— Barry Silbert (@BarrySilbert) January 10, 2023

In the latter half of the letter, Silbert addressed some raging questions about DCG’s relationship with FTX, the loan agreement with Genesis and more. He said that Genesis had a “trading and lending relationship” with Three Arrows Capital and had invested $250,000 in FTX’s Series B funding round in July 2021. DCG also borrowed $500 million between January and May 2022 at interest rates of 10%-12% and currently owes Genesis $447.5 million and 4,550 Bitcoin (BTC), worth $78 million, which matures in May 2023.

However, what puzzled the crypto community more was that Silbert avoided addressing accusations by Cameron Winklevoss that came just hours before his letter. Winklevoss penned an open letter to the board of DCG on Jan. 10, saying CEO Barry Silbert was “unfit” to run the company. He also accused Silbert of defrauding customers and hiding behind lawyers. Genesis reportedly owes Gemini $900 million.

One Twitter user wrote that the letter indicates that people might not get their money back. Another user questioned Silbert’s tactics of buying GBTC shares by selling borrowed BTC and wrote:

“So you borrowed Bitcoins, sold them, and bought GBTC shares? Not sure how you “hedge” GBTC long positions with Bitcoins otherwise.”

Other crypto community members accused Silbert of deflecting the allegations and called the letter a “PR tactic."

Laymen terms! I'm Rekt and can't pay @cameron @tyler @Gemini but I did some neat things along the way! https://t.co/8ZzrE5KIyZ
— KingKong (@KingKon43801491) January 10, 2023

A few users went on to compare his tactics to that of Terraform Labs co-founder Do Kwon, while others speculated that the letter hinted that Silbert might lose his job in the coming weeks.

Bitcoin price holds $17K into Fed Powell speech as GBTC jumps to multi-month highs

January 10, 2023 Coin Telegraph

Bitcoin

Bitcoin, crypto and risk asset traders await dovish signals from Fed Chair Jerome Powell ahead of fresh CPI data later in the week.

Bitcoin (BTC) stayed above $17,000 on Jan. 10 as risk assets awaited fresh cues on policy from the United States Federal Reserve.

*BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView*

Powell to kick off week of U.S. macro triggers

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD consolidating after hitting $17,396 on Bitstamp the day prior — its highest since Dec. 16.

The pair gained in line with gold early in the week, seeing a slight cool-off as U.S. stocks also lay in wait for potential Fed catalysts.

Fed Chair Jerome Powell was due to speak at a central bank conference on the day, with bulls hoping for a more dovish tone in the wake of several months of declining inflation.

The latest Consumer Price Index (CPI) data covering December, 2022, was nonetheless not due until Jan. 12.

Commenting on short-term BTC price action, Michaël van de Poppe, founder and CEO of trading firm Eight, cautioned on becoming overly optimistic.

“Bitcoin rejecting at crucial area as Powell's speech is approaching yesterday + simply crucial resistance zone,” he summarized on Jan. 9.

“Probably sweep towards $17.1K before another bounce towards $17.5K for bearish divergence or we long at $16.9K. Good volatility. Lots of dips on altcoins too.”

*BTC/USD annotated chart. Source: Michaël van de Poppe/ Twitter*

Full-time Bitcoin trader George, a popular presence on social media, meanwhile eyed a potential intraday range with $17,000 as support.

“Think we could be establishing a new range between 17k and 17.6k for the next couple days,” part of an update confirmed.

Elsewhere, there was no sign of relief for the U.S. dollar, as strength continued to deteriorate in a potential boost for crypto. The U.S. dollar index (DXY) threatened to challenge 103 as support for a second day running.

*U.S. dollar index (DXY) 1-hour candle chart. Source: TradingView*

GBTC "discount" reverses despite investor pressure

More conspicuous than the modest uptick in BTC spot price was that of the largest Bitcoin institutional investment vehicle.

Related: Why is the crypto market up today?

Beginning Jan. 6, the Grayscale Bitcoin Trust (GBTC) began a marked recovery which saw its share price add 17% over three days.

In so doing, the GBTC discount to net asset value — spot BTC — narrowed to its smallest in several months.

Formerly a premium, the negative “premium” stood at 38.5% on the day, up from record lows of 48.9% on Dec. 13, according to data from Coinglass.

Grayscale parent company, Digital Currency Group (DGC), continued to field criticism amid a concerted effort from investors to regain access to their cash.

*GBTC premium vs. asset holdings vs. BTC/USD chart. Source: Coinglass*

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

3 reasons why it could be a rocky week for Bitcoin, Ethereum and altcoins

January 3, 2023 Coin Telegraph

Altcoin

BTC volatility is at a record low, inflows to spot markets remain muted and this week’s economic calendar suggests that volatility is set to rock the crypto market.

Continuing with 2022’s trend, there is a lack of positive excitement in the crypto market. While Bitcoin (BTC) and altcoins have remained stagnant to start 2023, there are a few reasons why volatility could spike in January.

*Market caps during the 2022 holiday period. Source: Arcane Research*

Winklevoss Letter to DCG stirs up bankruptcy FUD

On Jan. 2, Cameron Winklevoss, the co-founder of Gemini, penned an open letter to Digital Currency Group (DCG) founder, Barry Silbert demanding answers on the $900 million in locked customer funds. Gemini launched the “Earn” program in coordination with Barry Silbert and the $900 million in customer funds have been locked since Nov. 16 due to DCG liquidity issues. After the letter, crypto Twitter began generating FUD toward DCG, believing there to be liquidity issues akin to 3 Arrows Capital and FTX.

The financial strain the large Gemini hole could place on DCG is significant because they may be forced to sell sizable GBTC and ETHE positions, along with other positions in trusts run by their sister company Grayscale. According to Arcane Research, another path for DCG to meet debt obligations would be to initiate a Reg M.

Vetle Lunde, Senior Analyst at Arcane Research, noted:

“A Reg M would cause a massive arbitrage strategy of selling crypto spot versus buying Grayscale Trust shares. If this scenario plays out, crypto markets could face further downside.”

*Grayscale trust holdings of circulating supply. Source: Arcane Research*

Fear is high and liquidity is low

The DCG and Gemini drama comes during a period in the market where sentiment is down. Despite evidence that investors plan to participate in crypto in 2023, the most market participants are not feeling bullish and are reluctant to engage with risk-assets. The index currently sits at 26 out of a 100-point scale which is the same as in December.

*Fear and greed index. Source: Alternative.me*

Such a high level of fear is even more significant during periods of low liquidity. Market activity continues to fall reaching volumes not witnessed before Binance introduced zero trading fees for BTC pairs on June 24. The low spot trading volumes suggest that muted market participation will continue in the early part of this year.

*BTC volume with and without Binance. Source: Arcane Research*

If DCG were to take the Reg M path and spot market volume remains low, a correction in crypto prices could sharpen in the short-term.

The upcoming economic calendar hints at possible volatility

As shown below, macro markets have a busy start with 2023 with notable events.

Wed. Jan. 4:

ISM manufacturing PMI
US JOLTs (job openings)
FOMC Meeting Minutes

Thur. Jan. 5:

US Balance of Trade

Fri. Jan. 6:

Non Farm Payrolls and Unemployment data
ISM Non-manufacturing PMI

Sun. Jan. 8:

Gemini settlement offer to DCG expires

Thurs. Jan. 12:

US CPI Inflation Rate Report

Fri. Jan. 13:

US banks start Q4 2022 earnings reports

If the numbers are below expectations or anything out of the ordinary occurs, the equities market may react by selling-off.

Reduced spot volumes are coupled with BTC volatility reaching a 2.5-year low. According to Lunde, the low volatility period will not last too long.

Lunde said,

“These low volatility periods rarely last for long, and volatility compression periods have previously tended to be followed by sharp moves, even in stagnant markets.”

*BTC 7 and 30-day volatility. Source: Arcane Research*

Some analysts believe that the Jan. 12 United State Consumer Price Index (CPI) will show a spike in inflation. If this is the case, the Federal Reserve may continue to raise interest rates which has caused crypto’s market cap to decline in the past.

With the possibility of further interest rate hikes combined with the current market sentiment, potential DCG bankruptcy and decreased market liquidity, the crypto market could react with another drop to the downside.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Valkyrie Reveals Intention to Sponsor Grayscale’s Bitcoin Trust as GBTC Discount to NAV Widens

January 1, 2023 Bitcoin.com

Crypto Giant Grayscale Considers Selling Portion of $10,753,804,948 Bitcoin Trust if ETF Plan Fails: Report

December 19, 2022 The Daily Hodl

BTC price faces 20% drop in weeks if Bitcoin avoids key level — analyst

December 19, 2022 Coin Telegraph

Bitcoin

Bitcoin does not look good when it comes to sustained BTC price upside, traders warn, as GBTC reaches a fresh record discount.

Bitcoin (BTC) stayed rigid below $17,000 at the Dec. 19 Wall Street open as skeptical traders feared more downside.

BTC traders call time on upside potential

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD lingering around the $16,700 mark, practically unmoved over the weekend.

The pair saw only fractional volatility at the open, as United States equities fell slightly. At the time of writing, the S&P 500 and Nasdaq Composite Index were down 0.5% and 1%, respectively.

For Bitcoin traders, there was little to celebrate, with consensus forming around the potential for testing lower levels next.

“Bearish as long as it stays below the $19k,” Crypto Poseidon summarized alongside a chart.

*BTC/USD annotated chart. Source: Crypto Poseidon/ Twitter*

Popular trader and analyst Rekt Capital highlighted $17,150 as an important level to reclaim to avoid further downside later on.

“If BTC continues to reject from the ~$17150 resistance... Then price could drop up to -20% to the downside in the coming weeks,” he predicted, uploading the 1-month BTC/USD chart.

Rekt Capital added that there was “still time for BTC to perform a Monthly Close above the ~$17150 level later this month,” but that “a Monthly Close below ~$17150 would confirm the beginnings of a breakdown from here.”

Michaël van de Poppe, founder and CEO of trading firm Eight, meanwhile offered a slightly more hopeful outlook.

With more U.S. economic data expected toward the end of the week, BTC/USD had the potential to break to the upside and target $17,300 to then offer “short opportunities.”

“No breakthrough, then looking for longs around $16.2K or $15.5K,” he countered.

Grayscale CEO: FTX was a "failure of people"

News that BinanceUS, the U.S. offshoot of largest crypto exchange Binance, had offered to acquire the assets of stricken lender Voyager, meanwhile had no tangible impact on market performance.

The latest development in the FTX saga, the announcement came as Binance itself continued to deal with what its CEO, Changpeng Zhao again called “FUD” over the weekend.

In a letter to investors, meanwhile, Michael Sonnenshein, CEO of investment firm Grayscale, sought to draw a clear distinction between FTX and crypto as a whole. Grayscale’s parent company, Digital Currency Group (DCG), had previously also become caught up in the FTX aftermath.

“FTX Was a Failure of People, Not a Failure of Crypto: Too many investors were harmed. From crypto to traditional finance, mainstream media, and D.C. – it seems few were spared from deception through false narratives and false documentation,” he wrote.

“We should not, however, conflate the actions of a few individuals and organizations with Bitcoin or Ethereum, the underlying blockchain technology, or smart contracts and decentralized finance applications.”

Grayscale’s flagship product, the Grayscale Bitcoin Trust (GBTC), traded at a 48.7% discount to the Bitcoin spot price as of Dec. 17 — its steepest discount ever, according to data from Coinglass.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Grayscale CEO highlights 20% GBTC share buyback option if ETF conversion fails

December 19, 2022 Coin Telegraph

buyback

The proposed offer would require both SEC relief and shareholders' approval.

According to an end-of-year letter to investors published on Dec. 10, Grayscale Investments' CEO Michael Sonnenshein said that the firm may consider "a tender offer for a portion of the outstanding shares of GBTC [Grayscale Bitcoin Trust]" if the latter's exchange-traded fund conversion process is ultimately unsuccessful. Sonnenshein stated that "such tender offer would be for no more than 20% of the outstanding shares of GBTC" and would require both regulatory "relief" from the U.S. Securities and Exchange Commission as well as shareholder approval to approve such offer.

Grayscale and its subsidiary over-the-counter traded fund GBTC is currently embroiled in a lawsuit with the SEC after the latter denied Grayscale's application to convert the GBTC to a spot Bitcoin ETF on June 29, 2022. As told by Sonnenshein, Grayscale filed its opening brief against the SEC on October 11, 2022, and is due to submit its response to an SEC reply brief by January 13, 2022, with the final written brief due on February 3, 2022. "Shortly thereafter, a three-judge panel will be selected to hear oral arguments and rule on the case," Sonnenshein wrote to investors.

"In the event we are unsuccessful in pursuing options for returning a portion of the capital to shareholders, we do not currently intend to dissolve GBTC, but would instead continue to operate GBTC without an ongoing redemption program until we are successful in converting it to a spot bitcoin ETF."

Cointelegraph previously reported that GBTC, along with other major Grayscale digital currency funds, are trading at discounts to net asset values, or NAVs, of 34% to 69% due to solvency concerns arising from its parent company, Digital Currency Group, and its exposure to troubled cryptocurrency broker Genesis Global. At the time of publication, GBTC has $10.68 billion in Bitcoin (BTC) under management but is only worth $5.48 billion per market capitalization.

SEC looks to intercept Grayscale Bitcoin ETF review bid

December 13, 2022 Coin Telegraph

Bitcoin ETF. Bitcoin.

The SEC is looking to block an appeal from Grayscale Investments after denying its proposed Bitcoin exchange traded fund.

The United States Securities and Exchange Commission (SEC) is taking further steps to stop Grayscale Investments’ efforts to launch a Bitcoin exchange-traded fund (ETF). Grayscale began its legal challenge of the SEC’s denial order of the proposed investment product in June 2022.

A 73-page brief filed with the U.S. Court of Appeals for the District of Columbia Circuit on Dec. 9 saw the SEC lay out the reasoning for its initial decision to bar Grayscale’s request to convert its existing Bitcoin Trust into a spot Bitcoin ETF.

The SEC is looking for the D.C. Circuit to deny Grayscale’s appeal, which claims the proposed fund is inherently different from futures ETFs it has approved in the past.

Grayscale argues that the SEC's disapproval order violated the Administrative Procedure Act, the guidelines through which American federal agencies develop and issue regulations. The investment fund cited previous approvals by the SEC to list and trade Bitcoin futures contracts.

The SEC had contested this point, noting that previously approved products only contained futures contracts that trade on the Chicago Mercantile Exchange (CME). The exchange is a registrar of the Commodity Futures Trading Commission (CFTC) and operates under ‘robust surveillance’ according to the SEC.

The regulatory body believes the Bitcoin spot market is fragmented and unregulated in comparison to other investment vehicles. It also argues that Grayscale failed to provide a supportive argument that the CME’s surveillance of futures trading would ‘sufficiently detect and deter fraud and manipulation targeting the bitcoin spot market.’

Meanwhile, Grayscale maintains the SEC has failed to justify its different treatment of Bitcoin futures and spot Bitcoin exchange-traded products. The fund argues these products track BTC’s price more directly and has labeled the regulator's denial order as discriminatory and harmful to investors.

The Grayscale Bitcoin Trust has been operating since 2013 and offers accredited investors shares in the fund. The fund invests in BTC, giving investors exposure to the cryptocurrency in the form of a security, without having to directly acquire, manage and store BTC.

Grayscale has been looking to convert the fund into an ETF since 2016. It reiterated its reasoning behind the move in the launch of its legal tussle with the SEC, saying the ETF would give wider access to BTC and enhance investor protection.

Digital Asset Giant Grayscale’s DeFi Investment Product Starts Trading on OTC Markets Amid Crypto Bear Market

December 10, 2022 The Daily Hodl

Grayscale

Powell to kick off week of U.S. macro triggers

GBTC "discount" reverses despite investor pressure

Winklevoss Letter to DCG stirs up bankruptcy FUD

Fear is high and liquidity is low

The upcoming economic calendar hints at possible volatility

BTC traders call time on upside potential

Grayscale CEO: FTX was a "failure of people"

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