Grayscale CEO Michael Sonnenshein says that investors would greatly benefit from the conversion of GBTC into an exchange-traded fund (ETF), something the firm has been fighting for for multiple years.

In a new interview with Peter McCormick, Sonnenshein says that the U.S. Securities and Exchange Commission (SEC) is violating Section 706(2)(A) of the Administrative Procedure Act (APA), which instructs courts reviewing regulation to invalidate any agency action found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

“Really, by approving the Bitcoin futures ETFs and not approving GBTC’s conversion or any of the other spot Bitcoin ETFs for that matter, the SEC has acted arbitrarily and capriciously, and that’s the simplest, most rudimentary element underpinning the SEC lawsuit.”

Grayscale’s GBTC, which aims to provide institutions with regulatory-compliant exposure to Bitcoin (BTC), has been trading at a steep discount to its net asset value (NAV), currently at over 45%. Sonnenshein says that if the SEC allowed for the conversion of GBTC into an ETF, GBTC would trade near par of the Bitcoin spot price, adding billions of dollars to investors’ positions as the discount evaporates.

“Because GBTC is trading at a discount to its NAV today, if it were to convert to an ETF, there would no longer be a discount, there would no longer be a premium. There’d be that arbitrage mechanism embedded… 

What does that mean? That means there’s actually a couple billion dollars of capital that would immediately go right back into investors’ pockets on an overnight basis, because the fund, instead of trading at a discount, would bleed back up to its net asset value. In this environment where investors are facing inflation and all these other kinds of things, I can’t imagine why the SEC wouldn’t want to protect investors, [and] return that value to them.”

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