ETF Suit: Grayscale slams SEC in reply brief, calls argument illogical

Key Takeaways

  • Grayscale had described SEC’s “central premise as illogical.”
  •  Grayscale argues that SEC “is not permitted to decide for investors whether certain investments have merit.”

The legal battle between the Securities and Exchange Commission(SEC) and Gryasclae has been going on for some months. Grayscale Investments’ application to convert its $13.5 billion Grayscale Bitcoin Trust (GBTC) into a spot-based bitcoin exchange-traded fund (ETF) has been denied multiple times by SEC. 

In a recent reply brief questioning SEC’s reasoning behind the rejection, Grayscale had accused SEC of acting arbitrarily in treating spot traded exchange-traded products differently from futures traded products. The reply brief is part of ongoing litigation that Grayscale initiated in June 2022. In June, Grayscale filed a “petition for review” with the US Court of Appeals for the District of Columbia to challenge the SEC decision to deny the conversion of Grayscale Bitcoin Trust to a spot Bitcoin ETF.  

 “There is a 99.9% correlation between prices in the bitcoin futures market and the spot bitcoin market’, the reply brief filed in the District of Columbia Circuit Court reads. In the reply brief, Grayscale had described SEC’s “central premise as illogical.”

“Its central premise—that the Exchange’s surveillance-sharing agreement with the CME provides adequate protection against fraud and manipulation in the bitcoin futures market but not the spot bitcoin market—is illogical,” stated Grayscale.

It added that “a successful manipulation of prices in the spot bitcoin market would necessarily affect the price of bitcoin futures as well – and, therefore, the value of bitcoin futures ETPs’ holdings.”

Grayscale has earlier also argued that it is inconsistent to approve an ETF based on bitcoin futures but not allow one based on the underlying investment. Accusing the SEC of exceeding its statutory authority, Grayscale argues that SEC “is not permitted to decide for investors whether certain investments have merit.”

The regulatory watchdog, however, had rejected the ETF applications claiming the application did not do enough to protect investors from “fraudulent and manipulative acts and practices.” SEC is expected to issue its final brief on the matter on February 3.

The latest development comes amid Grayscale’s parent company, Digital Currency Group (DCG), and its founder/CEO, Barry Silbert, facing mounting pressure amid liquidity crunch rumors.

Saniya Raahath
Saniya Raahath

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