• Grayscale Investments LLC participated in oral arguments before the US Court of Appeals for the DC Circuit regarding its attempts to get its popular Grayscale Bitcoin Trust (GBTC) converted to a spot bitcoin exchange-traded fund (ETF).
• The presiding judges seemed to side with Grayscale and questioned the SEC Senior Counsel Emily Parise about the differences between a futures ETF and a spot bitcoin ETF.
• The SEC response was that correlation does not equal causation, but the judges argued that the SEC had not provided sufficient evidence to explain their decision making.

Background on Grayscale’s Attempts at Approval of GBTC

Grayscale Investments LLC has been attempting to get its popular Grayscale Bitcoin Trust (GBTC) converted to a spot bitcoin exchange-traded fund (ETF). The U.S. Securities and Exchange Commission (SEC) has repeatedly denied previous attempts at the introduction of a spot bitcoin ETF, leading Grayscale to sue the SEC over what they allege are arbitrary and inconsistent decisions with regards to approving Bitcoin futures ETFs.

Oral Arguments Before US Court of Appeals

On Tuesday, oral arguments took place in front of three presiding judges at the United States Court of Appeals for the DC Circuit in relation to this case. During these arguments, Chief Judge Sri Srinivasan and Judge Neomi Rao continually prodded the SEC Senior Counsel Emily Parise about why there is differentiation between a futures ETF and a spot bitcoin ETF. Judge Rao asked Parise, “The prices move together 99.9% of the time. So where’s the gap, in the Commission’s view?” The full record of questioning can be found here.

SEC Response

The SEC responded by saying that correlation does not equal causation; their lawyers explained that without empirical evidence showing whether fraud and manipulation in spot markets affects futures markets in similar ways, they cannot rely on surveillance from future markets as part of their approval process for a spot bitcoin ETF.

Judge Response

In response to this explanation from Parise, Judge Rao remarked that “The SEC has not offered any explanation that [Grayscale] are wrong” – implying that insufficient evidence had been provided by the agency to justify their decision making process.

Conclusion

Overall, it appears that during these oral arguments before US Court of Appeals Judges Srinivasan and Rao were largely sympathetic towards Grayscale Investment’s position on converting GBTC into an exchange-traded fund – though it still remains unclear whether or not this attempt will be successful given current limitations posed by lack of empirical evidence for fraud or manipulation between spot markets and futures markets