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Grayscale Urges SEC to Grant Bitcoin Spot ETF Approve Following Court Victory

Attorneys representing Grayscale Investments decried the inconsistent treatment portrayed by regulators towards Bitcoin futures and trusts. In a letter, the lawyers asked the Securities and Exchange Commission (SEC) to end the protracted debate by expediting approval of the spot Bitcoin exchange-traded fund (ETF).

The letter by Davis Polk and Munger Tolles & Olson law firm on Tuesday, September 5, cited the Grayscale’s court victory directing the SEC to review its ETF bid. The letter to the federal agency affirms Grayscale’s victory march following the three-judge panel at the D.C Circuit Court of Appeals. The ruling faulted the Gary Gensler-led SEC for wrongly rejecting Grayscale’s application to convert Bitcoin Trust (GBTC) into an ETF. 

Court Faulting SEC’s Failure to Offer Reasoned Explanation in Bitcoin ETF Decision

The letter cited the court’s ruling that it was erroneous for the federal agency to reject the Bitcoin ETF proposal without a reasoned explanation. The ruling mandates the SEC to reconsider Grayscale’s applications, though the agency could appeal. 


The lawyers dismissed that the federal commission has grounds to continue discriminating against exchange-traded products (ETPs) investing in the Bitcoin futures contracts. As such, the lawyers cited the recent approval of Bitcoin futures ETFs.

Grayscale submits that the SEC should approve its application for the spot Bitcoin ETF since it relied upon a similar market surveillance agreement featuring the Chicago Mercantile Exchange (CME). The letter argues that the SEC deemed the agreement sufficient for the Bitcoin futures ETFs.

Material Difference Nonexisting in Surveillance-Sharing Agreement

The appeals court admitted Grayscale’s argument that SEC never explained the material difference in the two arrangements. The lawyers observed that the SEC has yet to offer a reason to distinguish spot Bitcoin ETPs from futures ETPs. They restated that it would have already surfaced if the SEC had a contrary opinion.

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The letter indicates that spot Bitcoin ETF would offer mainstream investors alternative investments. In particular, it would expose them to Bitcoin without compelling token ownership. The letter comes amid mixed predictions on the spot Bitcoin ETF applications that the SEC has previously dismissed, citing their susceptibility to market manipulation. 

Grayscale Bitcoin Trust is the world’s largest Bitcoin fund, with an estimated asset base exceeding $16 billion. The continued rejection of a bid to convert the trust into an ETF condemned its shares to discount trading relative to the Bitcoin holdings. The lawyers regretted that the discounting advances unjustified harm to the investors.

The lawyers are optimistic about avoiding harm if the SEC nods to the trust conversion to the ETF structure. The discount has, however, subsided to 19.77%. The decline observable in the discount began following the court’s ruling when it tightened by over 600 basis points in the optimism of Rule 19b-4 approval.

Grayscale’s Lawyers Urges SEC to Stop Disadvantaging US Investors

The letter laments that the continued delay in approving the spot Bitcoin ETF is disadvantageous to US investors. The letter notes that the investors are forced to invest in less efficient products founded upon complex structures, unlike the spot bitcoin ETFs. The letter indirectly points to the recent inflows witnessed in the Bitcoin futures ETF following the ruling.

The letter notes that Grayscale is bound to confront fierce competition as the SEC also reviews other applications for spot Bitcoin ETFs. The letter echoes Grayscale’s stance captured in comment letters that the SEC cannot allege noncompliance with additional requirements for Bitcoin ETFs exceeding what it deemed sufficient when approving Bitcoin futures ETFs.

The letter cites the court ruling that the surveillance-sharing arrangement that SEC entered with CME ought to be able to detect fraud and manipulative conduct within the Bitcoin and futures market. 

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Grayscale Laments Continued Delay by SEC to Review Bitcoin ETF

The lawyers submitted that the years-long period taken by the SEC in reviewing Grayscale’s application exceeds the deadlines provisioned in the securities law. The letter questions whether the disapproval by SEC ultimately vacated in the previous week’s court ruling attained the legal obligations to necessitate timely approval.

The lawyers expressed optimism in the nearly a million investors securing a fair playing field. The letter reaffirmed Grayscale’s readiness to transform Bitcoin Trust’s operations into the ETF.

The letter comes after the revelation that the SEC has 45 days to appeal the court’s decision. An appeal would send the case before the Supreme Court or rehearing by the entire D.C Circuit Court. 

Editorial credit: T. Schneider /

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Stephen Causby

Stephen Causby is an experienced crypto journalist who writes for Tokenhell. He is passionate for coverage in crypto news, blockchain, DeFi, and NFT.

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