Grayscale slams SEC refusal to approve Bitcoin ETF as illogical, arbitrary, and discriminatory

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(Kitco News) –
Grayscale Investments just turned up the heat in their lawsuit against the Securities and Exchange Commission (SEC), attacking the regulator’s latest brief against their proposed bitcoin-backed ETF in the strongest possible terms.

“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,” lawyers for Grayscale wrote in a response brief submitted to the court on Friday. “The commission’s brief never comes to terms with the order’s arbitrary premise and the discriminatory result it has produced.”

Grayscale’s latest brief, filed Friday in the US Court of Appeals for the District of Columbia Circuit, was a response to the SEC’s filing submitted last month. The company sued the SEC in June after it chose to block the Grayscale Bitcoin Trust (GBTC) from becoming an ETF.

Grayscale’s position is that the willingness of the SEC to approve ETFs based on bitcoin futures, while refusing to approve their GBTC fund’s conversion into an ETF because it’s backed by actual bitcoin, is unjustified and in violation of the Administrative Procedure Act and The Securities Exchange Act of 1934.

Grayscale lawyers dismissed the SEC’s argument that bitcoin futures funds and spot bitcoin funds have “fundamental differences in the ability to detect and deter fraud and manipulation,” saying that any fraud or manipulation in the bitcoin spot market would affect the price of bitcoin futures, and that the futures-backed ETF relies on the Bitcoin Reference Rate just as GBTC does.

On June 29, Grayscale announced that it was suing the SEC, the same day that the regulator announced they were rejecting the company’s spot Bitcoin ETF. The SEC argued that Grayscale’s application failed to meet the standard designed to prevent fraudulent practices and offered insufficient protection to investors.

Grayscale disagreed and responded with its lawsuit challenging the SEC decision. “Grayscale supports and believes in the SEC’s mandate to protect investors […] and we are deeply disappointed by and vehemently disagree with the SEC’s decision to continue to deny spot Bitcoin ETFs from coming to the U.S. market,” said Grayscale’s CEO Michael Sonnenshein at the time.

Craig Salm, Grayscale’s Chief Legal Officer, also posted a Q&A-style update to the company’s blog on Friday. “We are fighting for all those who believe in the future of bitcoin,” Salm wrote. “So if you’re long bitcoin – whether you self-custody your private key(s) on a piece of paper, cryptosteel, hardware wallet, a brainwallet in your head, or entrust them to a third party – I encourage you to support our ETF case.”

Final briefs from both sides are due on Feb. 3, and oral arguments will be scheduled once judges have been chosen.

Grayscale’s parent company Digital Currency Group (DCG) has been in the news on a near-daily basis for weeks now as their ongoing battle with the Genesis crypto exchange blew up on twitter, with new criminal allegations leveled and ultimatums issued, and culminating in last night’s announcement of SEC charges against both firms.

The steady stream of bad news for DCG has contributed to downward pressure on the Grayscale Bitcoin Trust, which has seen its discount compared to spot bitcoin prices grow as high as 49% in mid-December. Friday was a very positive day for GBTC, however, as it gained over 8% on the session and was trading at $11.33 at the time of writing, with the discount rate just under 40%.

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