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Grayscale’s Shocking Decision of Withdrawal of SEC Application for Filecoin Trust Launch

Key Points

  • Grayscale Investments has decided to pull out its application to launch a Filecoin (FIL) Trust product with SEC
  • This decision comes after the SEC expressed concerns that FIL is an unregistered security
  • SEC also requested that Grayscale withdraw its application. 
  • Grayscale disagrees with the SEC’s stance and plans to provide a detailed explanation of the legal basis for its position to the SEC staff.

Grayscale Investments has recently faced a setback in its plans to launch a Filecoin (FIL) Trust product. The asset management firm had previously filed an application with the U.S. Securities and Exchange Commission (SEC) to convert its Filecoin Trust into a publicly traded product. 

Unfortunately, the SEC has asked Grayscale to withdraw its application due to concerns that FIL may be an unregistered security. This turn of events has surprised many industry insiders, as Grayscale is a well-established player in the cryptocurrency investment space. The company has already launched several successful investment modules, including trusts for Bitcoin, Ethereum, and other digital assets.

Grayscale in a Fight with SEC

Grayscale, a digital asset management firm, has recently found itself in a bit of a pickle. The Securities and Exchange Commission (SEC) issued a warning to Grayscale, claiming that their Filecoin Trust product could potentially be classified as a security under federal law. This warning caused the price of FIL to drop, leaving many investors feeling uneasy.

Grayscale’s submission of the Form 10 application to the SEC aimed to introduce a better version of the Filecoin Trust offering. The company hoped that this new product would function more like a public company, allowing them to file quarterly reports on their financial activity. However, the SEC’s warning has thrown a wrench in their plans.

The SEC Argument 

Grayscale made a bold move on April 14, 2023, by filing a registration statement with the SEC to register shares of the Trust.  However, things took a turn on May 16th, when Grayscale received a comment letter from SEC staff, warning them that FIL “meets the definition of a security” under federal law.

This led the SEC staff to believe that the Trust could be classified as an investment company under the Investment Company Act of 1940. The SEC staff didn’t stop there. Later, the application for the trust product submitted by Grayscale was requested to be withdrawn by the regulator. However, in response, Grayscale has stated that they do not believe Filecoin is security and intend to respond promptly to the SEC staff with an explanation of the legal basis for their position.

 End Notes:

Grayscale’s decision to withdraw its application to launch a Filecoin Trust product was made due to the warning issued by the SEC that FIL is an unregistered security. Grayscale has, however, expressed its disagreement with the classification of FIL as a security under federal securities laws. The firm intends to provide the SEC staff with an explanation of the legal basis for their position.

This conflict between U.S. regulators and cryptocurrency firms highlights the complex regulatory landscape within the country. It underscores the urgent need for precise and consistent regulatory guidelines to avoid such conflicts in the future.

Unfortunately, the increased scrutiny from regulatory bodies has not been beneficial to the rapidly evolving crypto market. Instead, it has resulted in stifling innovation and the departure of several companies from the market. This situation calls for a balance between regulation and innovation to ensure the growth and sustainability of the crypto market.