Grayscale’s Solid Day in Court Against SEC Cheered by Investors

Shares of the firm’s GBTC leaped after arguments in spot bitcoin ETF case.

Reviewed by: Shubham Saharan
Edited by: Shubham Saharan

Grayscale Investment’s status as underdog in its lawsuit against the Securities and Exchange Commission is being questioned after the owner of the Grayscale Bitcoin Trust appeared to watchers to have a solid day in court. 

Arguments were heard Tuesday in the District of Columbia Circuit Court of Appeals in Washington, D.C. before a three-judge panel. Grayscale is suing the SEC after the watchdog last year denied its request to convert the $14.8 billion Grayscale Bitcoin Trust into the first U.S.-listed spot bitcoin exchange-traded fund.  

The SEC has denied the creation of a spot exchange-traded product for nearly a decade, and in Grayscale’s case, has argued the firm hasn’t proven it can prevent fraud and market manipulation with respect to bitcoin prices. Firms including Fir Tree Capital Management have also fought against Grayscale’s efforts. 

While some have put Grayscale’s odds of winning at less than 50/50, reinforced by GBTC’s price decline relative to the value of its underlying assets, those views are being second-guessed after the judges grilled the SEC’s lawyers, questioning their premises for rejecting the ETF application. The judges in the single-day hearing questioned the agency’s rationale on potential market manipulation for spot bitcoin products compared to their futures counterparts.  

“In approving the futures ETPs, it seems to be that the commission has to have necessarily drawn the conclusion that this arrangement would prevent fraud and manipulation on the underlying spot market,” Judge Neomi Rao stated during cross examination.    

Before the hearings kicked off, Grayscale was thought to be the underdog when it faced a three-judge panel, Bloomberg Intelligence’s Elliott Stein wrote, with a 40% chance of winning. But following the first day of arguments, those odds seemed to reverse, as Stein upped Grayscale’s chances of victory to 70%.  

“We’re changing our view and now think Grayscale is favored to win a ruling vacating the rejection order,” Stein wrote.  

Still, he warned, the SEC may deny a spot product for other reasons even if Grayscale is awarded the win. 

“Language in the court ruling will be key, however, as to whether the court gives the SEC an opening to reject the application on different grounds or locks them into accepting it. We lean toward the former for now,” Stein added.  

Shares of GBTC closed 8.6% higher Tuesday. 

A final decision on Grayscale’s suit is expected this fall.

Contact Shubham Saharan at [email protected]  

Shubham Saharan is a markets reporter at Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.