Coinbase backs Grayscale’s Bitcoin ETF lawsuit against the SEC

America’s largest cryptocurrency exchange, Coin baseputs its weight behind Grayscale – the world’s largest Bitcoin fund – in its legal battle with the Securities and Exchange Commission (SEC).

Grayscale is sue the federal regulator over its refusal to approve the company’s application, or anyone else’s, for a Bitcoin ETFs. The fund claims that the SEC “fails to apply consistent treatment to similar investment vehicles,” as evidenced by the commission’s willingness to approve more Bitcoin futures ETFsbut refused to allow spot market ETFs to go forward.

Coinbase’s amici curiae cardfiled in the US Court of Appeals for the District of Columbia on Tuesday, made the same argument.

“Both place and future [exchange-traded products], whether linked to Bitcoin or other commodities such as gold, platinum or palladium, creates the same investment exposure for investors,” the exchange argued. “Both products are designed to track the price of the underlying commodity, Bitcoin.”

An ETF is an investment vehicle that allows buyers to gain exposure to an asset without having to purchase and hold the underlying asset itself. A Bitcoin ETF, for example, will allow investors to indirectly invest in Bitcoin without buying the cryptocurrency through an exchange and storing it in a digital wallet.

Both futures and spot market ETFs achieve essentially the same goal, but in different ways. While a futures ETF tracks the price of derivative contracts – which themselves allow traders to bet on the future price of Bitcoin – a spot market ETF will back its stocks directly with Bitcoin.

The futures market is also regulated by the CFTC. SEC Chairman Gary Gensler has previously indicated that he believes this could make these markets safer for ordinary investors. The Bitcoin spot market, the buying and selling of physical BTC, is not regulated.

However, in its brief, Coinbase argued that restricting Bitcoin spot ETFs from reaching the market “unfairly limits investor choice,” and further argued that the SEC “engages in an arbitrary and capricious practice of picking winners and losers among investment products.”

Several cryptocentric non-profit organizations were also represented as amici curiae in the brief, including the Blockchain Association, the Chamber of Digital Commerce, Chamber of Progress and Mint Centre.

After refusing several Bitcoin spot ETF proposals from different partiesThe SEC’s reasoning remains the same: ETF providers must enter into a “monitoring sharing agreement” with a “regulated market of significant size” related to the underlying Bitcoin being tracked, as a measure against potential market manipulation.

Before Grayscale’s application was rejected in June, it claimed it could use the CME Bitcoin futures market as a source of market manipulation data. However, the commission argued that this market, although regulated, was not sufficiently related to “spot Bitcoin.”

Several other countries have already approved Bitcoin spot ETF products, including Canada, Australia, Germany and Brazil. According to Coinbase, the SEC’s refusal to do the same is driving US investors to those markets and other trading venues that are not within the commission’s purview.