Justices Consider Grayscale’s Arguments in Bitcoin ETF v. SEC Hearing

D.C. Circuit judges slammed SEC lawyers as they defend their decision not to approve Grayscale’s move to a spot bitcoin ETF.

Grayscale Investments LLC participated in oral arguments Tuesday in the United States Court of Appeals for the D.C. Circuit in connection with its efforts to convert its popular Grayscale Bitcoin Trust (GBTC) into a spot bitcoin exchange-traded fund (ETF). In those oral arguments, the three presiding justices appeared to side with Grayscale in its position.

The US Securities and Exchange Commission (SEC) has repeatedly denied previous attempts to introduce a spot bitcoin ETF. This led to Grayscalesued the SECclaiming that the decisions were arbitrary and inconsistent with those of the Commission approval decision Bitcoin Futures ETF.

In today’s arguments, the presiding justices, Chief Justice Sri Srinivasan and Justice Neomi Rao, constantly pressed SEC Senior Counsel Emily Parris on the SEC’s distinction between a futures ETF and a spot Bitcoin ETF.

“[The prices] move together 99.9% of the time. So where is the gap according to the Commission?” asked Justice Rao.

The SEC’s response was that correlation does not equal causation, with its lawyers explaining that the key empirical question is whether fraud and manipulation in spot markets affect futures in the same way that they can rely on monitoring futures markets . Without that missing empirical piece, SEC counsel said, the agency can’t be sure it can rely on CME’s future monitoring to approve spot ETFs.

The questioning led to pontificating that the SEC had not provided enough evidence to explain its decision, with Justice Rao telling Parris, “The SEC has not offered any explanation that the petitioners are wrong.”

The full record of the interrogation can be I listened here.

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