Grayscale files an opening brief against SEC over rejection of its spot Bitcoin ETF

Updated: 12 October 2022

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Grayscale, the world’s largest digital asset management company, has filed an opening brief against the US Securities and Exchange Commission. The digital asset manager is suing the SEC for denying its conversion of the Grayscale Bitcoin Trust to a spot Bitcoin exchange-traded fund (ETF).

Grayscale files opening brief against SEC

Grayscale filed its opening legal brief on October 11 at the US Court of Appeals in the District of Columbia Circuit. In the opening brief, the digital asset management company claimed that the SEC’s refusal to approve its Bitcoin ETF was “arbitrary, capricious, and discriminatory.”

Grayscale has also argued that the Bitcoin futures ETFs approved by the SEC generated their prices depending on the same indices as a spot Bitcoin ETF. The digital asset manager also said that the SEC could not provide a rational argument that Bitcoin futures ETFs do not have the same risks in the same market as spot Bitcoin ETFs.

“The Commission has violated the APA’s most basic requirements by failing to justify its vastly different treatment of Bitcoin Futures ETPs and spot Bitcoin ETPs,” Grayscale added.

Grayscale has also pointed to flaws in the “significant-market test” conducted by the SEC. The tests assess whether the proposal of an exchange to list an exchange-traded product prevents acts and practices that could be deemed manipulative and fraudulent.

Attorneys at the digital asset manager have also said that the significant-market test can only be used on Bitcoin ETPs. Therefore, this was a reason why the Grayscale spot Bitcoin ETF has been rejected by the regulator.

Grayscale says SEC is harming Trust shareholders

Grayscale filed a proposal to convert the Grayscale Bitcoin Trust into a spot Bitcoin ETF. The digital asset manager has said that the refusal of the SEC to approve the product could harm 850,000 investors who own shares in the Trust. Grayscale has said that the SEC is depriving the shareholders of the Trust billions of dollars in value.

The SEC denied Grayscale’s application for a spot Bitcoin ETF on June 29. The digital asset manager sued the SEC the same day after filing a “Petition For Review.” The Grayscale Bitcoin Trust is one of its highly demanded products. The digital asset management company held $26.4 billion in assets under management on March 2022.

The digital asset manager has said that the SEC needs to submit its brief by November 9. Grayscale will later submit a reply brief on November 30. The two parties will then submit a final brief on December 21. The SEC has not approved any spot Bitcoin ETFs, citing the possibility of price manipulation.

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