U.S. federal appellate court judges questioned on Tuesday whether the U.S. Securities and Exchange Commission (SEC) was correct to reject Grayscale Investment’s application for a spot bitcoin exchange-traded fund, since the agency had previously approved bitcoin futures products.
The SEC rejected Grayscale Investment LLC’s application to convert its flagship spot Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF) last June, arguing the proposal did not meet anti-fraud and investor protection standards.
A panel of judges appeared skeptical of the U.S. Securities and Exchange Commission’s (SEC) arguments during an appeals court hearing in Grayscale’s ongoing bid to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF).
The company went to court Tuesday to argue the SEC’s denial of its ETF application was “arbitrary,” telling the panel of judges that Grayscale is “asking to be regulated” by the SEC through its conversion of GBTC to an ETF. Grayscale is a subsidiary of Digital Currency Group, CoinDesk’s parent company.
Valkyrie’s chief investment officer, Steven McClurg, said in a statement that his company does not believe a spot bitcoin ETF will be approved within the next year. A representative for Skybridge declined to comment, and Fidelity did not immediately respond to a request for comment.
Grayscale’s legal team plans to argue before the District of Columbia Court of Appeals in Washington that the SEC acted arbitrarily in rejecting applications for spot bitcoin ETFs when it had previously approved bitcoin futures ETFs, according to the company’s lead counsel.
Bitcoin futures ETFs track bitcoin futures contracts, or agreements to purchase or sell bitcoin at a certain price on a specified date. A spot bitcoin ETF would track bitcoin’s underlying market price. Proponents say a spot bitcoin ETF would enable investors to gain exposure to bitcoin without directly buying it.
The SEC rejected Grayscale’s application to convert its flagship spot Grayscale Bitcoin Trust (GBTC) into an ETF last June, arguing the proposal did not meet standards aimed at preventing fraudulent practices and protecting investors. Grayscale sued the regulator almost immediately after its proposal was denied.
The agency has denied more than a dozen spot bitcoin ETF applications, all of which it said lacked surveillance-sharing agreements to detect potential manipulation.
Grayscale has argued in court filings that the SEC previously deemed agreements with the Chicago Mercantile Exchange – where bitcoin futures trade – as sufficient to prevent fraud in bitcoin futures-based ETFs, and that since both spot and futures funds rely on bitcoin’s price, the setup should also be satisfactory for Grayscale’s spot fund.
