The United States Securities and Exchange Commission (SEC) is taking additional steps to stop efforts by Grayscale Investments to launch a Bitcoin (BTC) exchange-traded fund (ETF). grayscale began his legal challenge of the SEC's order denying the proposed investment product in June 2022.
In a 73-page brief filed with the US Court of Appeals for the District of Columbia Circuit on Dec. 9, the SEC laid out the reasoning for its initial decision to bar Grayscale's request to convert its existing Bitcoin Trust in a spot Bitcoin ETF.
The SEC is seeking DC Circuit to reject 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 by which US federal agencies develop and issue regulations. The investment fund cited previous SEC approvals to list and trade Bitcoin futures contracts.
Related: Grayscale fires first salvo in case against SEC over Bitcoin ETF denial
The SEC had disputed this point, noting that the previously approved products only contained futures contracts that are traded 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 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 the CME's surveillance of futures trading would "sufficiently detect and deter fraud and manipulation targeting the Bitcoin spot market."
Meanwhile, Grayscale maintains that the SEC has been unable to justify its different treatment of Bitcoin futures and Bitcoin exchange-traded products. The fund argues that these products track the price of BTC more directly and has called the regulator's denial order discriminatory and harmful to investors.
Grayscale Bitcoin Trust has been in business 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 purchase, manage and store BTC.
Grayscale has been looking to turn the fund into an ETF since 2016. It reiterated its reasoning behind the move in launching its legal dispute with the SEC, saying the ETF would provide broader access to BTC and improve investor protection.
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