Grayscale’s Bitcoin Case Gets Support From View Of Capricious SEC

The U.S. Securities and Exchange Commission’s refusal to approve exchange-traded funds (ETFs) based on spot bitcoin trading is premised on a distinction without a difference, according to one of five briefs filed on Wednesday in support of asset manager Grayscale Investment’s suit against the agency.

The friend-of-the-court brief, signed by former U.S. regulatory officials, points out that the SEC is fine with ETFs based on a futures index that has an almost perfect correlation with a gauge based on spot prices. The SEC has based its opposition to spot-based ETFs on their vulnerability to fraud and manipulation, but the evidence indicates that they are no more at risk than futures.

Grayscale, which is getting support from crypto and traditional finance in its court battle, sued the SEC in June after the regulator rebuffed Grayscale’s attempt to convert its $12 billion bitcoin trust (GBTC) into a spot bitcoin ETF. Before the suit, more than 11,000 letters of support for Grayscale were received by the agency

The five amicus curiae briefs, were filed with the Court of Appeals for the District of Columbia Wednesday. Grayscale supporters include crypto exchange Coinbase; industry advocates the Blockchain Association and Coin Center; the Chamber of Digital Commerce; NYSE Arca, the exchange that had sought permission to list Grayscale trust’s shares; and a group of academics and former regulators.

The amici argue that the Commission’s decision to approve applications for bitcoin futures ETFs but not spot funds, such as that of Grayscale, was arbitrary and lacked “adequate justification.” To demonstrate the point, one drew a comparison between an index underlying futures-based ETFs that the SEC permits to trade, the CME CF Bitcoin
BTC
Reference Rate, and the index underlying the Grayscale trust, the CoinDesk Bitcoin Price Index. With a correlation of 0.98, the two “appear to be near-perfect substitutes,” states the brief, which was signed by former officials of the SEC and CFTC as well as Brian Brooks, former acting U.S. comptroller of the currency, among others.

The Chamber of Commerce has accused the SEC of “freewheeling private policymaking” and argued that its “actions, both in issuing a decision without adequate explanation and in avoiding rulemaking on this issue, ultimately harm investors and businesses.”

In addition, multiple parties have made the case that the commission’s refusal ultimately hurts the United States’ competitiveness. “Denying investors the benefits of a spot “exchange-traded product, which would have allowed investors to gain exposure to bitcoin without purchasing it directly, needlessly hampers innovation, causing the U.S. to fall behind well-regulated markets around the globe that have already adopted such products,” Coinbase’s brief reads.

“You’re seeing a diversity of high-quality opinions from various parties,” says Craig Salm, Grayscale’s chief legal officer. “That collectively shows that this is an important policy topic that the investment community cares about.”