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DC Circuit Court of Appeals judges grilled the SEC on why the regulator approved bitcoin futures exchange-traded products (ETPs) and not Grayscale Investments’ proposed spot offering Tuesday — a line of questioning one analyst said could signal a ruling in favor of the crypto-focused asset manager.
The comments came in oral arguments in front of judges Sri Srinivasan, Neomi Rao and Harry Edwards Tuesday. The proceeding came after Grayscale and the SEC exchanged written briefs in recent months.
Grayscale sued the SEC last June after the agency did not allow the firm to convert its flagship Bitcoin Trust (GBTC) to an ETF.
GBTC launched in 2013 and holds $14 billion in assets. The trust 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.
Donald Verrilli Jr., a former US solicitor general who Grayscale hired last year as a legal strategist, kicked off the hearing. Verrilli reiterated that the SEC’s approval of ETFs investing in CME-traded bitcoin futures, but not for proposed ETPs that invest in bitcoin directly — such as what GBTC would convert to — is discriminatory.
Emily Parise, an attorney representing the SEC, contended that bitcoin futures ETPs are different from the proposed spot bitcoin products the agency has denied. Bitcoin spot markets are “fragmented and unregulated,” Parise said.
Underlying products for the approved bitcoin futures ETFs instead trade only on CME, which is CFTC-regulated, she added, where the “exchange has a surveillance sharing agreement that gives it access to information like market trading activity, customer identification — the tools to investigate fraud and manipulation if it were to occur.”
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