Grayscale sues SEC over ETF approval
Grayscale Investments, a cryptocurrency asset manager, appears to have won the opening salvo in its battle with the US Securities and Exchange Commission (SEC) to launch a Bitcoin exchange-traded fund (ETF). The company sued the SEC last June after it did not allow the firm to convert its Bitcoin Trust (GBTC) to an ETF. The case went to oral arguments in front of the DC Circuit Court of Appeals judges on 2 March, with Grayscale’s legal strategist, former US solicitor general Donald Verrilli Jr., reiterating that the SEC’s approval of Bitcoin futures ETPs, but not for proposed ETPs that invest in Bitcoin directly, is discriminatory.
Judges question SEC’s approval of Bitcoin futures ETPs
During the hearing, judges grilled the SEC on why it approved Bitcoin futures ETPs but not Grayscale’s proposed spot offering. One judge, Neomi Rao, suggested that the SEC needed to explain how it views the relationship between Bitcoin futures and the spot price of Bitcoin, as the two move together 99.9% of the time. She added that the SEC’s ruling on a Bitcoin futures ETF by fund group Teucrium recognizes the futures prices are influenced by the spot prices, and therefore the SEC needs to explain why Grayscale is wrong.
Analyst says judges’ questions may signal ruling on Grayscale’s case
Bloomberg Intelligence ETF Analyst James Seyffart said the judges’ questions could signal how they might rule on the case, adding that Rao was “definitely team Grayscale”. Seyffart said Grayscale needs to get Judge Srinivasan or Judge Edwards on its side as well to win. Seyffart also said the SEC’s attorney seemed to keep saying the futures weren’t manipulated in the same way and he didn’t understand what she was trying to say.
GBTC trades at discount, Grayscale prefers ETF conversion
GBTC, which launched in 2013 and holds $14bn in assets, has traded at a discount of more than 40% in recent weeks. Grayscale has said its preferred solution is converting the trust to an ETF. The SEC has contended that Bitcoin spot markets are “fragmented and unregulated”, whereas underlying products for the approved Bitcoin futures ETFs trade only on CME, which is CFTC-regulated and has a surveillance sharing agreement that gives it access to information like market trading activity, customer identification and the tools to investigate fraud and manipulation if it were to occur.