March 23, 2023

In a recent court hearing, judges overseeing Grayscale’s lawsuit against the Securities and Exchange Commission (SEC) questioned the agency’s basis for denying Grayscale’s application to establish a Bitcoin ETF. The hearing took place in the U.S. Court of Appeals for the D.C. Circuit and was overseen by Judges Sri Srinivasan, Neomi Rao, and Harry Edwards.

Grayscale initiated legal action against the SEC in June of last year after its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot market Bitcoin ETF was rejected. During the hearing, the judges questioned the SEC’s Senior Counsel Emily Parise about the agency’s argument that Grayscale’s application lacked data necessary to confidentially determine “whether fraud and manipulation in the spot market impacts futures [markets] in the same way.”

Judge Neomi Rao challenged the SEC’s argument, stating that it seems the futures price of Bitcoin is “not as susceptible to manipulation as the spot price.” The judges also questioned the SEC’s decision to approve Bitcoin futures-based ETFs while denying Grayscale’s application.

Grayscale’s legal battle with the SEC has been ongoing for almost a year, with the investment firm arguing that the SEC’s decision to deny its application was arbitrary and capricious. The outcome of the case could have significant implications for the cryptocurrency industry, as a Bitcoin ETF would make it easier for institutional investors to invest in the digital asset.

The judges did not provide a timeline for when a decision on the case would be made. However, the hearing suggests that the judges are taking a critical look at the SEC’s decision to deny Grayscale’s application and are considering the potential impact of a Bitcoin ETF on the cryptocurrency industry.

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