In a major development to the Grayscale’s Bitcoin ETF lawsuit, a panel of judges in Washington quizzed the SEC over its decision to reject the latter’s application for its flagship spot investment fund, while approving other products.
The US top regulator rejected Grayscale Investment LLC’s application last June on the grounds of not meeting anti-fraud and investor protection standards.
Judges at the court hearing stated that since both Grayscale’s spot and futures funds depend on the price of bitcoin, the regulator’s earlier approval of specific surveillance agreements to prevent fraud in bitcoin futures-based ETFs should also be acceptable for Grayscale’s spot fund.
One of the judges, Neomi Rao stated,
It seems like it’s fine for an agency to say okay, we need some more information, but it seems there’s quite a bit of information here on how these markets work together, and the SEC has not offered any explanation… that the petitioners here are wrong.
Emily True Parise, senior litigation counsel for the SEC, claimed that there is not enough information available for the agency to establish if the agreements for surveillance may also detect potential fraud and manipulation in the spot markets.
“The evidence is just mixed at this point. It’s bi-directional sometimes,” she said.
On the other hand, Grayscale’s lead counsel Donald Verrilli Jr. argued that a spot bitcoin ETF would “better protect investors” because it would give them the advantage of oversight based on the surveillance arrangements established with the Chicago Mercantile Exchange, where BTC futures are traded.
In Jan, this year, Grayscale’s Chief Legal Officer, Craig Salm accused the SEC of treating spot bitcoin ETFs differently from the futures ETFs, despite both deriving their pricing from the same underlying spot BTC markets.
Salm went on to say that the “substantial market test” that the SEC used to assess the proposal was deeply flawed, excessive, arbitrary, and unreasonable.
Proponents Vouch For Spot Bitcoin
It needs to be mentioned that in 2019, Grayscale Investment Fund, filed Form 10 with the SEC to push its ETF product only to be thwarted several times by the agency citing multiple reasons.
Michael Sonnenshein, the CEO of Grayscale, recently stated that he anticipates the court would decide in Grayscale’s favor and that he expected a definitive decision in the case this fall.
Bitcoin futures ETFs follow contracts to buy or sell bitcoin at a specific price on a specific date whereas a spot bitcoin ETF tracks BTC’s underlying market price.
A spot bitcoin ETF, according to supporters, would give investors exposure to BTC without requiring them to buy it.