Explainer-What's at stake in Grayscale's spot bitcoin ETF case against the SEC?
By Hannah Lang
(Reuters) — The U.S. District of Columbia Court of Appeals will soon rule on whether the Securities and Exchange Commission (SEC) wrongly rejected an application from crypto asset manager Grayscale Investments to list an exchange-traded fund that tracks the price of bitcoin.
The case is being closely watched by the cryptocurrency and asset management industries, which have been trying for years to convince the SEC to approve a spot bitcoin ETF. They say it would allow investors to gain exposure to bitcoin, the world's largest cryptocurrency, without having to own it. The SEC, though, worries spot bitcoin ETFs will be vulnerable to manipulation.
Here's what you need to know:
WHAT WENT DOWN WITH GRAYSCALE?
The SEC last year denied Grayscale's application to convert its spot Grayscale Bitcoin Trust into an ETF. While the agency has rejected spot bitcoin ETFs, it has approved bitcoin futures ETFs, which track agreements to buy or sell bitcoin at a pre-agreed price. Grayscale proposed using the same manipulation safeguards that were approved for those futures ETFs, but the SEC said that did not meet its bar.
Grayscale was just one of several asset managers, including Cathie Wood's ARK, Fidelity and Invesco, whose spot bitcoin ETF applications the SEC rejected on investor protection grounds. Unlike those other firms, Grayscale sued the SEC. Because the defendant is a regulator, the case went straight to the appeals court.
WHAT IS GRAYSCALE'S ARGUMENT?
Grayscale argued that the bitcoin futures ETF surveillance arrangements should also be satisfactory for Grayscale's spot ETF, since both products rely on bitcoin's underlying price.
Bitcoin futures ETFs track bitcoin futures that trade on the Chicago Mercantile
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