Grayscale to Argue SEC’s Inconsistency as Bitcoin ETF Dispute Heads to Court

The company’s appeal of the Securities and Exchange Commission’s rejection of its bitcoin ETF will be argued in U.S. federal court next week in Washington, D.C.

AccessTimeIconFeb 28, 2023 at 5:01 p.m. UTC
Updated Feb 28, 2023 at 5:31 p.m. UTC

Grayscale says it’s preparing to argue in court next week that the Securities and Exchange Commission (SEC) inappropriately treated its bitcoin exchange-traded fund (ETF) bid differently than earlier decisions approving bitcoin futures-based ETFs, according to the company’s legal team.

The digital investment company’s application to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF was denied in June, so Grayscale took the SEC to court. On March 7 the sides are set to make their arguments to federal judges of the U.S. Court of Appeals for the District of Columbia Circuit. Grayscale’s team will contend the regulators had a constrained role here and didn’t follow logic in its rejection after having approved several futures ETFs with similar risk profiles. Grayscale is owned by Digital Currency Group, which also owns CoinDesk.

“They don’t have a blank check,” said Donald B. Verrilli Jr., the former U.S. Solicitor General enlisted by Grayscale to help in the legal challenge, during a press briefing on Tuesday. “It’s just a classic case of taking like cases and treating them differently.”

In its rejection of Grayscale's bitcoin ETF, the SEC cited worries over market manipulation, and noted a lack of a surveillance-sharing agreement between a "regulated market of significant size" and a regulated exchange, repeating a concern it has expressed each time it denied similar spot bitcoin ETF applications from Grayscale and others companies.

“You’ve got all these approved [futures] ETFs out there functioning now,” said Verrilli, and the SEC’s logic in approving those relied on an assumption that manipulation protections – which he said also rely on spot market ties – were adequate.

As for the industry’s recent dramas, he said that “is going to be in the air,” but he said he’d be surprised if it became a direct element in next week’s arguments. He said this particular panel of three judges will “deal with the specifics,” and he added that “the more you get into the specifics, the stronger our case gets.”

Grayscale CEO Michael Sonnenshein has said that if the ETF avenue reaches a dead end, the company is weighing a tender offer to redeem shares of the trust.

Craig Salm, Grayscale’s chief legal officer, said the case has obvious major implications on bitcoin and that “winning it would be very good” for that market. But if the company loses, he said they’ll fully exhaust appeals – even if that takes it to the U.S. Supreme Court.


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Jesse Hamilton

Jesse Hamilton is CoinDesk's deputy managing editor for global policy and regulation. He doesn't hold any crypto.