The United States Securities and Exchange Commission (SEC) is taking new action to halt efforts by Grayscale Investments to launch a Bitcoin (BTC) exchange-traded fund (ETF). Grayscale began its legal challenge to the SEC’s order denying the proposed investment product in June 2022.
In a 73-page brief filed with the US Court of Appeals for the District of Columbia Circuit on Dec. 9, the SEC laid out the reasoning for its initial decision to bar Grayscale’s request to convert its existing Bitcoin Trust in a Bitcoin spot ETF.
The SEC wants the Columbia Circuit to reject Grayscale’s appeal, which alleges that the proposed fund is inherently different from futures ETFs the Commission has approved in the past.
Grayscale alleges that the SEC’s disapproval order violated the Administrative Procedure Act, the guidelines by which US federal agencies make and issue regulations. The investment fund cited previous SEC approvals to list and trade Bitcoin futures contracts.
The SEC had rebutted this point, noting that previously approved products only contained futures contracts traded on the Chicago Mercantile Exchange (CME). This market is registered with the Commodity Futures Trading Commission (CFTC) and operates under “strict supervision,” according to the SEC.
The regulatory body believes that the Bitcoin spot market is fragmented and unregulated compared to other investment vehicles. It also argues that Grayscale failed to provide a supporting argument that CME oversight of futures trading would “sufficiently detect and deter fraud and manipulation targeting the Bitcoin spot market.”
For his part, Grayscale argues that the SEC has failed to justify its different treatment of Bitcoin futures and BTC spot products. The fund argues that these products more directly track the price of cryptocurrency and has called the regulator’s denial order discriminatory and harmful to investors.
Grayscale Bitcoin Trust has been running since 2013 and offers accredited investors shares in the fund. The fund invests in BTC, offering investors exposure to the cryptocurrency in the form of a security, without having to directly purchase, manage and store BTC.
Grayscale has been trying to turn the fund into an ETF since 2016. It reiterated its reasoning behind the move at the launch of its legal fight with the SEC, saying the ETF would give broader access to BTC and improve investor protection.
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