U.S. Court Questions SEC Claims in Grayscale GBTC Lawsuit


Lawsuit over conversion to Bitcoin ETF

Oral argument was held on the 7th in the lawsuit between the US crypto asset (virtual currency) management company Grayscale and the US Securities and Exchange Commission (SEC). Judges in the District of Columbia Court of Appeals have questioned the SEC’s arguments.

Judge Neomi Rao noted that “Bitcoin (BTC) futures prices are 99.9% tied to the spot (spot) price, which makes it appear to be a derivative of the spot price.” . Justice Rao continues:

There is considerable information about how these markets work together.

The SEC needs to explain more clearly how it understands the relationship between bitcoin’s forward and spot prices.

In response to this opinion, SEC Senior Counsel Emily Parise responded that even if prices are 99% correlated, that does not mean that futures and spot prices are directly causally linked. bottom. She continued that she only compares prices once a day, not the entire intraday price.

Grayscale’s lead attorney, Donald Verrilli Jr, also said that if GBTC were to be converted into a physical Bitcoin ETF, the agreement would allow it to be overseen by the Chicago Mercantile Exchange (CME). He argued that investor protection could be stronger than it is today.

The SEC’s Parise argues that there is a lack of data to determine whether the CME’s oversight addresses fraud and manipulation risks in the physical markets.

During the oral argument, GBTC’s stock price rose about 8% to about ¥1,770 ($12.9) at the time of writing.

What is GBTC

A “Bitcoin investment trust” provided by Grayscale, a major US virtual currency investment company. An investment trust that is linked to the price of Bitcoin and can be bought and sold in the same way as ordinary stocks. It is offered to institutional investors and accredited investors recognized by the U.S. Securities and Exchange Commission (SEC), and has the advantage that investors do not have to buy, sell or hold actual Bitcoins.

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The story so far

The lawsuit comes after Grayscale sued the SEC after the SEC refused to convert Grayscale’s bitcoin (BTC) mutual fund GBTC into an ETF.

Grayscale has criticized the SEC for its continued rejection of physical Bitcoin ETFs, even though it has approved several Bitcoin futures ETFs from 2021. It alleges that the decision is arbitrary and hurts investors.

The SEC argued that futures ETFs are endorsements of ETPs that hold only futures contracts listed on the regulated Chicago Mercantile Exchange (CME). While these futures ETPs will be regulated, it says there has been no evidence presented that cash ETFs reduce the risks of fraud and market manipulation.

Grayscale is used by GBTC, and the index it will use even after conversion to a physical ETF is priced in the same way as the index used by Bitcoin futures on the CME, making both risky. He argued that there was no difference.

Negative deviation problem

Currently, the price of GBTC is trading well below the underlying bitcoin price, partly due to the non-exchangeable nature of the product.

If GBTC can be converted into a physical Bitcoin ETF, traders will be able to conduct arbitrage trading that takes advantage of the price difference between the ETF and Bitcoin, thereby narrowing the price gap with the underlying asset. ing.

Grayscale Chief Executive Michael Sonnenshein said in January that he would consider conducting a tender offer for GBTC shares if it were unable to convert GBTC into an ETF “by exhausting all legal options against the SEC.” speaking. It is considered as a last resort to return part of GBTC’s capital to shareholders.

connection: Grayscale CEO “Tender offer for investment trust GBTC is the last resort”

The post U.S. Court Questions SEC Claims in Grayscale GBTC Lawsuit appeared first on Our Bitcoin News.


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