The United States Securities and Exchange Commission (SEC) is taking further steps to stop Grayscale Investments’ efforts to launch a Bitcoin (BTC) exchange-traded fund (ETF). Grayscale began its legal challenge of the SEC’s denial order of the proposed investment product in June 2022.
A 73-page brief filed with the U.S. Court of Appeals for the District of Columbia Circuit on Dec. 9 saw the SEC lay out the reasoning for its initial decision to bar Grayscale’s request to convert its existing Bitcoin Trust into a spot Bitcoin ETF.
The SEC is looking for the D.C. Circuit to deny Grayscale’s appeal, which claims the proposed fund is inherently different from futures ETFs it has approved in the past.
Grayscale argues that the SEC's disapproval order violated the Administrative Procedure Act, the guidelines through which American federal agencies develop and issue regulations. The investment fund cited previous approvals by the SEC to list and trade Bitcoin futures contracts.
Related: Grayscale fires first salvo in case against SEC over Bitcoin ETF refusal
The SEC had contested this point, noting that previously approved products only contained futures contracts that trade on the Chicago Mercantile Exchange (CME). The exchange is a registrar of the Commodity Futures Trading Commission (CFTC) and operates under “robust surveillance,” according to the SEC.
The regulatory body believes the Bitcoin spot market is fragmented and unregulated in comparison to other investment vehicles. It also argues that Grayscale failed to provide a supportive argument that the CME’s surveillance of futures trading would “sufficiently detect and deter fraud and manipulation targeting the Bitcoin spot market.”
Meanwhile, Grayscale maintains the SEC has failed to justify its different treatment of Bitcoin futures and spot Bitcoin exchange-traded products. The fund argues these products track BTC’s price more directly and has labeled the regulator's denial order as discriminatory and harmful to investors.
The Grayscale Bitcoin Trust has been operating since 2013 and offers accredited investors shares in the fund. The fund invests in BTC, giving investors exposure to the cryptocurrency in the form of a security, without having to directly acquire, manage and store BTC.
Grayscale has been looking to convert the fund into an ETF since 2016. It reiterated its reasoning behind the move in the launch of its legal tussle with the SEC, saying the ETF would give wider access to BTC and enhance investor protection.