Grayscale’s Suit Against the SEC Faces Difficult Times

Observers of the crypto business are unconvinced. Grayscale may prevail in its effort to appeal the SEC’s ruling on its spot bitcoin ETF.

Grayscale Investments is preparing its opening arguments against the SEC in response to the agency’s rejection of the company’s bitcoin ETF application, but some are sceptical that the decision would be reversed.

Grayscale’s Chief Legal Officer, Craig Salm, informed Blockworks that the company’s immediate emphasis is solely on working with the court and establishing briefing schedules. We believe that our arguments are strong and grounded in common sense, and we believe the court will agree.

In response to the SEC’s denial of Grayscale Investments’ application to convert its bitcoin trust (GBTC) to an exchange-traded fund (ETF), the company filed a petition for appeal with the US Trial court.

Salm said that the business anticipates submitting formal arguments over the next couple of months. At the appeal level, the lawyers for Grayscale predict that the case might take between nine and twelve months.

Salm said the corporation contends the SEC is behaving arbitrarily and capriciously in violation of the Administrative Procedures Act (APA). He noted that the regulator discriminates against issuers by allowing bitcoin ETFs based on futures contracts but rejecting spot-based bitcoin products.

“Both kinds of ETFs are priced based on the underlying bitcoin markets, so if you’re comfortable with one, you should also be comfortable with the other,” Salm said on Friday.

Will Grayscale succeed?

Dave Nadig, the financial futurist at VettaFi, said to Blockworks that the SEC’s mission provides it “very obvious jurisdiction” to control rule-making regarding securities exchange operations.

He said Grayscale have very less chance of winning. The SEC has express authority to accept or reject exchange regulations based on arbitrary criteria.

Nadig noted that for the SEC to rule in favour of Grayscale, it would effectively have to determine that since it permitted derivatives products, it must also permit a product centred on the underlying asset.

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