Judges Express Skepticism of SEC Arguments in Grayscale Bitcoin ETF Hearing

The panel of appeals court judges questioned the SEC's logic in drawing a distinction between bitcoin spot market prices and futures market prices.

AccessTimeIconMar 7, 2023 at 4:23 p.m. UTC
Updated Mar 7, 2023 at 9:21 p.m. UTC

A panel of judges appeared skeptical of the U.S. Securities and Exchange Commission's (SEC) arguments during an appeals court hearing in Grayscale's ongoing bid to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF).

The company went to court Tuesday to argue the SEC's denial of its ETF application was "arbitrary," telling the panel of judges that Grayscale is "asking to be regulated" by the SEC through its conversion of GBTC to an ETF. Grayscale is a subsidiary of Digital Currency Group, CoinDesk's parent company.

Chief Judge Sri Srinivasan and Judges Neomi Rao and Harry Edwards of the District of Columbia Circuit Court of Appeals in Washington, D.C., asked SEC Senior Counsel Emily Parise a number of questions about the agency's argument that bitcoin futures prices underlying futures ETFs were more resistant to manipulation than spot bitcoin markets might be if a spot bitcoin futures ETF was approved.

Judge Rao asked a number of questions about futures prices, contrasting with spot prices: "It seems to me that [what] the Commission really needs to explain is how it understands the relationship between bitcoin futures and the spot price of bitcoin ... it seems to me that ... one is just essentially a derivative. They move together 99.9% of the time. So where's the gap, in the Commission's view?"

In the SEC's view, said Parise, the 99% correlation does not equate to causation, saying that figure only refers to once-a-day prices rather than intraday prices. She had earlier already mentioned that in the SEC's opinion, "it is undisputed" that spot markets for bitcoin are fragmented, in contrast with bitcoin futures, which trade solely on CME.

The other judges also asked a number of questions ranging from the legal defense by the SEC to how it evaluated the tests it used to reject Grayscale's bid.

The judges' apparent skepticism of the SEC's position is sending GBTC higher by 5% on Tuesday while the price of bitcoin is flat at $23,300. That's further narrowing the closed-end fund's discount to net asset value (NAV), which had fallen to a one-month low of 42% on Monday.

Lyllah Ledesma contributed reporting.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.