Grayscale Challenges SEC’s Denial of Bitcoin ETF Application in Court

• Grayscale filed a reply brief in its appeal of the SEC’s denial of its application to convert its $12-billion Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin (BTC) exchange-traded fund (ETF).
• The SEC based its decision on findings that Grayscale’s proposal did not sufficiently protect against fraud and manipulation.
• 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.

On January 13th, 2023, 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. This is not the first time the agency has made similar findings in a number of earlier applications to create spot-based BTC ETFs. In response, Grayscale argued in court that the SEC had acted arbitrarily by treating spot traded exchange-traded products differently from futures traded products. The company stated in its brief that there is a 99.9% correlation between prices in the bitcoin futures market and the spot bitcoin market. In addition, Grayscale also claimed the SEC had exceeded its authority.

Grayscale appealed the SEC’s denial of its application to create a spot BTC ETF in June, and the case is progressing rapidly. According to the Grayscale chief legal officer, oral arguments may come within months. If the court decides in favor of Grayscale, the company could become the first to offer a spot-based Bitcoin ETF in the United States. Such an ETF would provide investors with an easier and more liquid way to buy and sell Bitcoin. It would also create an institutional-grade investment vehicle for investors who are wary of the high volatility of the cryptocurrency markets.