Grayscale Slams SEC's 'Unreasonable' Barring of Spot Bitcoin ETFs

In a new court filing, digital asset management company Grayscale is calling out the U.S. securities regulator for its "illogical" and "fundamentally unreasonable" argument against the approval of a spot bitcoin exchange-traded fund (ETF).

The document filed on Friday was in response to the Securities and Exchange Commission's (SEC) December defense of its decision to reject Grayscale Investment’s application to convert its flagship Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF.

On June 29, 2022, the same day that the SEC rejected its application, Grayscale filed suit requesting the U.S. Court of Appeals for the District of Columbia Circuit to review the order. Although a number of industry players rallied around Grayscale, the SEC stood by its call to reject the conversion, which would have allowed users to buy bitcoin on a standard stock exchange at current prices.

While the SEC has approved multiple bids to set up futures bitcoin ETFs, which are trade agreements to be executed at a future date and price, the regulator has said spot bitcoin ETFs are vulnerable to “fraudulent and manipulative conduct."

In Friday's filing, Grayscale countered that argument, saying "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." It therefore called the SEC's reasoning "illogical."

Final briefs on the case are due Feb. 3, after which three judges will be selected and the court will share a schedule for the lawsuit’s oral arguments, Grayscale Chief Legal Officer, Craig Salm said in a separate blog post. He added that a final decision on the case could come by the fall.

In its scathing response, the asset manager said the SEC is exceeding its statutory authority and "is not permitted to decide for investors whether certain investments have merit."

Grayscale's parent company, Digital Currency Group (DCG), and its founder and CEO Barry Silbert have come under increasing pressure to do something about GBTC's large discount to net asset value.

DCG is also the parent company of CoinDesk.

Read more: SEC Strikes Back in Grayscale Suit Over GBTC ETF Conversion