Grayscale products buoyed following oral arguments in case against the SEC

Grayscale had its day in court, and now the asset manager — and investors in its Grayscale Bitcoin Trust — must await the ruling, which could take three to six months. 

The asset manager brought the case against the U.S. Securities and Exchange Commission for rejecting its proposal to convert its flagship fund, GBTC, into a spot bitcoin ETF in June of last year. Lead counsel Don Verrilli laid out his arguments as expected and fielded questions from Chief Judge Sri Srinivasan and Judges Harry Edwards and Neomi Rao.

SEC senior counsel Emily Parise’s argument hit an early roadblock as Judge Rao questioned the regulator’s argument. 

Judge Rao said it seems that the Commission needs to explain how it understands “the relationship between bitcoin futures and the spot price of bitcoin.” Judge Rao noted one is essentially a derivative of the other, and they move together 99.9% of the time, asking Parise where the gap is “in the Commission’s view?”

When asked if the court agreed with Grayscale and what the Commission would do — approve a spot ETF or go back on its approval of bitcoin futures ETFs — Parise was unable to answer. 

Speculators speculate

GBTC and ETHE were higher despite trading in broader crypto markets being flat, as GoldenTree head of digital asset trading Avi Felman noted on Twitter. Oral arguments were “going well,” and the judges were “questioning the validity of the SEC’s arguments against spot ETF,” Felman added.

The market appeared to agree, with shares in GBTC and ETHE rising. 

GBTC traded up around 5% to $12.62 by 12:15 a.m. EST, according to TradingView data. The asset manager’s ether product, ETHE, jumped over 6% to about $7.30.

GBTC chart by TradingView

GBTC trades at a discount to its net asset value, meaning shares in the fund are cheaper than the value of the bitcoin in the fund. The discount narrowed to 42% on Monday, according to The Block’s data.

Bloomberg senior ETF analyst Eric Balchunas said the arguments were interesting, based on Judge Rao’s interruption of Parise and her “educated questions regarding futures and spot relationship.” Balchunas added that the SEC appeared to be “a bit rattled” by Judge Rao’s questions.