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 to the SEC’s rejection order for the proposed investment product in June 2022.
A 73-page brief filed with the US Court of Appeals for the District of Columbia Circuit on December 9 saw the SEC lay out the rationale for its initial decision to block Grayscale’s request to convert its existing Bitcoin Trust into a spot Bitcoin ETF.
The SEC is looking to the D.C. Circuit to reject Grayscale’s appeal, which argues that the proposed fund is inherently different from futures ETFs it has approved in the past.
Grayscale claims the SEC’s denial order violated the Administrative Procedure Act, the guidelines by which US federal agencies develop and issue regulations. The investment fund cited previous approvals from the SEC to list and trade Bitcoin futures contracts.
Related: Grayscale fires first salvo in case against SEC over rejection of Bitcoin ETF
The SEC had contested this point, noting that previously approved products contained only futures contracts traded on the Chicago Mercantile Exchange (CME). The exchange is a Commodity Futures Trading Commission (CFTC) registrar and operates under “robust supervision,” according to the SEC.
The regulator 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’s monitoring of futures trading would “adequately detect and deter fraud and manipulation targeting the Bitcoin spot market.”
Meanwhile, Grayscale claims the SEC has failed to justify its different treatment of Bitcoin futures and detect Bitcoin exchange-traded products. The fund argues that these products track BTC’s price more directly and has labeled the regulator’s denial order as discriminatory and harmful to investors.
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 purchase, manage and store BTC directly.
Grayscale has been looking to convert the fund into an ETF since 2016. It reiterated its reasoning behind the move in launching its legal battle with the SEC, saying the ETF would provide broader access to BTC and improve investor protection.