SEC Spot ETF Denial ‘Arbitrary’, Grayscale Lawyer Says

Grayscale Bitcoin Trust: Lawyers representing Grayscale opened the arguments saying the SEC had contradicted its own earlier orders when it comes to approving the GBTC spot Bitcoin ETF. Don Verrilli, the company’s attorney, said the SEC’s rejection was an arbitrary decision, considering the existence of Bitcoin futures contracts. Reacting to the opening arguments, the judge asked if the SEC would have to approve a spot Bitcoin exchange traded product (ETP) if Grayscale’s arguments are to be favored.

SEC Argues On Surveillance Responsibility

An SEC representative said the agency has the right to disapprove applications when it cannot make a finding of consistency as per the law. The SEC lawyer said that is was Bitcoin spot markets are “fragmented and unregulated” in contrast with the Bitcoin futures. When the judge asked what kind of data the company would have to provide to be able to make a better case, the SEC attorney said the correlation between once-a-day futures prices and intraday prices is unsupported. The judge asked why the SEC was more concerned with the regulatory detection of fraud but not on actual fraud, the SEC lawyer said it is the agency’s responsibility to have surveillance, as per the Exchange Act.

Oral arguments began in the Grayscale’s lawsuit challenging the Securities and Exchange Commission’s decision to deny its application to convert Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Arguments in the lawsuit were heard in front of the District of Columbia Court of Appeals. Grayscale’s argument in the case was based on allegations that the SEC violated the Administrative Procedure Act and Securities Exchange Act. By doing so, the company argues, the SEC was unfair to Grayscale after it had approved the futures ETF.

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The Denial

The clash began in June 2022, when the U.S. Securities and Exchange Commission (SEC) denied the spot ETF application. In a latest development, Alameda Research, a subsidiary of crypto exchange FTX, filed a lawsuit against Grayscale, a day before oral arguments in the SEC Vs Grayscale case began. The Alameda lawsuit alleged the company of unreasonably charging management fees for operating and administering the GBTC and Ethereum Trusts.

The GBTC share price was at one point down by around 2.50% amid the ongoing SEC lawsuit arguments, before recovering when the SEC began making arguments. On Monday, the Grayscale Bitcoin Trust (GBTC) share price closed with a rise of 4.62%, in a sign of confidence in the company’s stance in the lawsuit. The company’s lawyers said the case rests on the fact that the SEC treated its application differently.

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Anvesh reports major developments around crypto adoption and trading opportunities. Having been associated with the industry since 2016, he is now a strong advocate of decentralized technologies. Anvesh is currently based in India. Follow Anvesh on Twitter at @BitcoinReddy and reach out to him at [email protected]

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