SEC seeks to thwart Grayscale Bitcoin ETF review proposal

The Securities and Exchange Commission plans to block Grayscale's application to examine an exchange-traded fund that invests in bitcoin.

The SEC wants to stop Grayscale Investments from appealing their decision to turn down their Bitcoin exchange-traded fund.

The Securities and Exchange Commission (SEC) of the United States is taking more steps to stop Grayscale Investments from starting a Bitcoin exchange-traded fund (ETF). In June 2022, Grayscale went to court to fight the SEC's decision to turn down the proposed investment product.

In a 73-page brief sent to the U.S. Court of Appeals for the District of Columbia Circuit on Dec. 9, the SEC explained why it initially denied Grayscale's request to turn its existing Bitcoin Trust into a spot Bitcoin ETF.

The SEC wants the D.C. Circuit to turn down Grayscale's appeal, which says that the proposed fund is fundamentally different from the futures ETFs it has already approved.

Grayscale says that the SEC's disapproval order broke the Administrative Procedure Act, which is a set of rules that tells federal agencies in the United States how to make and issue rules. The investment fund said that the SEC had already given permission for bitcoin futures contracts to be put on the market and traded.

The SEC had argued against this, saying that previously approved products only had futures contracts that traded on the Chicago Mercantile Exchange (CME). The SEC says that the exchange is registered with the Commodity Futures Trading Commission (CFTC) and is subject to "robust surveillance."

The group in charge of regulating investments thinks that the Bitcoin spot market is not as well organised or regulated as other investment vehicles. It also says that Grayscale didn't show that the CME's monitoring of futures trading would "sufficiently detect and discourage fraud and manipulation on the Bitcoin spot market."

Grayscale, on the other hand, says that the SEC has not explained why it treats bitcoin futures and spot bitcoin exchange-traded products differently. The fund says that these products more closely track the price of BTC and that the regulator's decision to ban them is unfair and bad for investors.

Since 2013, the Grayscale Bitcoin Trust has been in business, and investors who meet certain requirements can buy shares in the fund. The fund invests in BTC. This gives investors access to the cryptocurrency through a security, so they don't have to buy, manage, and store BTC themselves.

Since 2016, Grayscale has tried to turn the fund into an ETF. It said again at the start of its legal battle with the SEC that it was doing this because the ETF would give more people access to bitcoin and make investors safer.