After exchanging written legal briefs recently, the U.S. Securities and Exchange Commission (SEC) and Grayscale Investments are ready to exchange oral arguments for the first time in court. This court case will determine whether the agency denied the company’s proposed spot bitcoin ETF wrongly.
The prominent crypto investment company, Grayscale, sued the SEC in June 2022. The lawsuit was filed after the regulator banned Grayscale from changing its flagship Bitcoin Trust (GBTC) to an ETF.
GBTC launched in 2013 and has $14 billion in assets. The trust has traded at over 40% discount in recent weeks. Grayscale’s ingenious solution is changing the trust to an ETF. According to the company, doing that would mitigate GBTC’s discount by introducing liquidity.
Grayscale’s past statements contend the SEC’s approval of ETFs that invest in CME-traded bitcoin futures, but ignoring the exchange-traded products (ETPs) that invest in bitcoin directly – like GBTC – is highly discriminatory.
Judges might indicate how they rule on the regulator’s denial of Grayscale’s proposed spot bitcoin ETF in the forthcoming proceedings.
In December, the SEC said that bitcoin futures funds and spot bitcoin funds “are not the same,” insisting they have “fundamental differences in the ability to detect and deter fraud and manipulation.”
This case’s oral arguments are scheduled for March 7, 2023. A former U.S. solicitor general, Donald Verrilli Jr., was hired by Grayscale in 2022 as a legal strategist. He is expected to represent the company in the proceedings, according to the company.
Verrilli said in an interview in the past week:
“It’s just a classic case of taking like cases and treating them differently, and it really comes through when you lay it side by side. The order that the SEC issued approving a bitcoin futures ETF, and the order in our case disapproving our spot ETF…they just contradict each other.”
Sri Srinivasan, the chief judge of the District of Columbia circuit’s US Court of Appeals, is expected to be among the three judges to hear the arguments, together with judges Harry Edwards and Neomi Rao.
Verrilli mentioned in the past week he expects these judges to ask several probing, specific questions to both sides. The SEC and Grayscale are allotted at least 15 minutes to present their cases.
Although no ‘bombshells’ are expected in the oral arguments, analysts say that they will be watching to see how the judges handle this hearing.
Bloomberg Intelligence ETF Analyst James Seyffart said:
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“We might be able to glean some insight from the questions they ask. It’s possible that some or all of the judges tip their hands tomorrow in which way they are leaning — time will tell.”
President of The ETF Store, Nathan Geraci, said that not a lot of new information may come to light from the SEC and Grayscale. However, he is also interested in the panel’s reaction. Geraci mentioned:
“If spot ETFs are subject to fraud and manipulation, then so are futures-based ETFs. It’ll be fascinating to hear how an independent panel of judges views this.”
Grayscale Chief Legal Officer Craig Salm believes the court could decide by the fall.
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