This story previously ran in Financial Advisor IQ's sister publication, Ignites.

Grayscale Investments is, as promised, challenging the Securities and Exchange Commission in court after the commission denied its proposal to convert its Bitcoin Trust into an ETF.

The firm received its rejection notice on Wednesday and promptly filed a petition for review in the U.S. Court of Appeals for the D.C. Circuit.

The SEC has consistently shot down applications for spot Bitcoin ETFs. And, as in prior rejections of such funds, SEC staff cited the lack of adequate surveillance-sharing agreements for NYSE Arca, where the Bitcoin Trust proposed to list.

"NYSE Arca has not established that it has a comprehensive surveillance-sharing agreement with a regulated market of significant size related to spot Bitcoin," the order says. "As a result, the commission is unable to find that the proposed rule change is consistent with the statutory requirements" under the 1934 Exchange Act.

Grayscale, however, contends that the SEC's prior approvals of Bitcoin futures funds, beginning with ProShares' Bitcoin Strategy ETF in October, leave it with no grounds to block spot Bitcoin funds.

"The SEC is failing to apply consistent treatment to Bitcoin investment vehicles," Grayscale said in a statement. "If regulators are comfortable with ETFs that hold derivatives of a given asset, they should logically be comfortable with ETFs that hold that same asset."

Grayscale put the SEC on notice last year that it would not take a rejection lying down, telling the commission that rejecting the proposal would be illegal under Administrative Procedure Act provisions against “arbitrary and capricious” regulatory orders.

Grayscale Chief Executive Michael Sonnenshein told Bloomberg last month that the firm would consider suing if denied.

Also last month, the firm announced it had retained former Solicitor General Donald Verrilli on its legal team. Verrilli is representing Grayscale in the appeals court petition.

Converting Bitcoin Trust to an ETF has become a pressing financial imperative for Grayscale amid the product's massive trading discount since spot Bitcoin funds began appearing outside the U.S. The trust, structured as a closed-end fund, trades at an approximately 30% discount to net asset value, representing about $8 billion of unrealized shareholder value, according to Grayscale.

"We hold firm in our belief that converting GBTC to a spot Bitcoin ETF remains the best option for investors," the firm said. "It would effectively eliminate the discount and cause the shares to track the price of Bitcoin."