A panel of judges heard oral arguments in Grayscale Investments’ suit against the United States Securities and Exchange Commission (SEC) on March 7. Grayscale challenged the SEC’s order not to approve Grayscale’s application to create a Bitcoin (BTC) exchange-traded fund (ETF). The SEC issued the order on July 6, 2022.
Former attorney general Donald Verrilli Jr. representing Grayscale and SEC senior counsel Emily Parise spoke for the SEC before Chief Judge Sri Srinivasan and Judges Neomi Rao and Harry Edwards in the District of Columbia Circuit Court of Appeals. Verrilli opened, saying:
“The fundamental problem with the order is that it contradicts the previous order of the SEC giving the green light to the Bitcoin futures ETP which poses the same risk of fraud and manipulation and has the same CME. [Chicago Mercantile Exchange] supervisory mechanisms to protect against these risks.
The SEC has approved investment products from Teucrium, ProShares, VanEck and Valkyrie linked to BTC futures.
Parise said that the offer is not comparable to the Grayscale proposal because the monitoring mechanism is not the same, because the spot market underlying the assets in the proposed ETF is “fragmented and unregulated,” unlike the CME, which is regulated by the Commodity Futures Trade. Commission (CFTC).
Parise then rejected the question that Bitcoin spot and the futures market move together 99.9% of the time, pointing out that it is not clear whether the futures market leads the spot market when it is affected by fraud and manipulation, or vice versa.
Related: GBTC deal could generate ‘several billion dollars’ for investors: Grayscale CEO
For the proposed Grayscale product, CME’s surveillance will be a proxy for spot market surveillance. Furthermore, the 99.9% correlation is based on the futures price “once a day”, regardless of the intraday price, Parise added.
INTERESTING: So the SEC lawyer came out strong w open arguments blah blah, but the judge interrupted him SAVERAL TIMES with Bunch very learned q which re futures and relationship point, Teucrium filed etc SEC seems a little rattled by this pro-Grayscale -y judge and he q which. pic.twitter.com/suyMkgPRcF
– Eric Balchunas (@EricBalchunas) March 7, 2023
The judges directed more questions to Parise than Verrilli, which led crypto community commentators to interpret the trend as favoring Grayscale. They asked for clarification, for example, on how Teucrium’s products that received SEC approval differed from Grayscale’s, and why the spot and futures markets could be affected differently by fraud and manipulation.