Investors and applicants interested in spot Bitcoin Exchange Traded Funds (ETFs) have taken note of the ongoing lawsuit between Grayscale and the U.S. Securities and Exchange Commission (SEC).
On June 29, 2022, the US SEC denied Grayscale’s application to convert the Grayscale Bitcoin Trust into a Spot Bitcoin ETF. On the same day, Grayscale appealed the SEC’s decision to a Washington, D.C. court.
The court’s decision on this case could decide the fate of a series of Spot Bitcoin ETF applications filed last month.
Grayscale alleges SEC acted ‘arbitrarily and capriciously’
The core of Grayscale’s argument is that the SEC acted “arbitrarily and capriciously” in denying the application for a spot Bitcoin ETF, especially given that it had already approved a Bitcoin futures ETF. be. SEC Violates Securities Laws With “Unfair Discrimination” Against Spot Bitcoin ETF Issuer Grayscale claim.
In other words, Grayscale believes that Bitcoin ETF spot ETFs and futures ETFs pose similar risks and should be treated equally. Additionally, both spot ETFs and bitcoin futures ETFs are priced based on the same underlying spot market, another reason why they should be treated equally, Grayscale argues.
Grayscale filed closing oral arguments in this lawsuit on March 7. The same day, the SEC argued that there is a correlation between spot ETFs and bitcoin futures ETFs, but that correlation does not equate to causation. The core of the SEC’s argument is that spot Bitcoin ETFs are more vulnerable to manipulation and fraud because the underlying spot market remains unregulated. However, the regulated Chicago Mercantile Exchange, where Bitcoin futures ETFs are traded, has adequate safeguards against fraud and manipulation.
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Regardless of the outcome, the court’s ruling will be important for anyone considering issuing a Spot Bitcoin ETF in the US. If Grayscale wins, the SEC could appeal the ruling to a higher court. If Grayscale loses the case, the company could seek a “grand court” hearing, which is unusual. At such hearing, all DC Circuit Court judges will consider the case. Alternatively, Grayscale may appeal the Supreme Court’s decision.
Given that many market analysts are optimistic about the approval of spot bitcoin ETF applications, the court’s ruling could have a significant impact on the prospects of these ETF issuers.
A post-court ruling in the Grayscale v. SEC case could be significant for spot Bitcoin ETF applicants that first appeared on CryptoSlate.