Judges Likely to Rule in Favor of Shades of Gray in Bitcoin Spot ETF Battle with SEC, Bloomberg Expert Says – Here’s Why
A senior litigation analyst at Bloomberg Intelligence believes the odds are now in Grayscale’s favor in its legal battle with the US Securities and Exchange Commission (SEC).
Last year, Grayscale sued the SEC after the regulator rejected its application to convert the Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin (BTC) exchange-traded fund (ETF).
During the first hearing at the District of Columbia Court of Appeals last week, Bloomberg Intelligence’s Elliott Stein says Grayscale mainly argued that the SEC is inconsistent in applying its standards after approving Bitcoin futures ETFs while denying spot Bitcoin ETFs.
According to Stein, the SEC countered by saying that unlike its futures counterpart, a spot Bitcoin ETF is not regulated, and therefore the regulator cannot be sure that there is no fraud or manipulation in the underlying market.
Stein emphasizes that the panel of judges focused on the SEC’s counterargument. However, the supervisory authority appears to have fallen short in providing satisfactory answers to the judges’ questions, according to Stein.
“The SEC’s argument that even though there is this 99.9% correlation between the prices in the spot market and in the futures market, they are not convinced that fraud in the spot market will show up in the same way in the futures market. They never really clarified what that meant, but they said Grayscale needed to provide more empirical evidence of how fraud in the spot market can manifest itself in the futures market.
The judges pushed back on that question quite a bit, saying, ‘Why do they have to show it? Why is it not enough that prices are so extensively correlated. And besides that, what kind of empirical evidence do they need to show?’ And the SEC didn’t really give a satisfactory answer to that in my opinion.”
According to Stein, Grayscale is now likely to come out on top after the SEC failed to support its main argument.
“Coming out of the argument, I think Grayscale is favored now, and I give them a 70% chance of winning an order from the court that vacates the SEC’s order denying their application.”
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