United States: Grayscale appeals to DC circuit in case of SEC denial of Bitcoin ETP

On Thursday, Grayscale Investments, LLC (Grayscale) filed a lawsuit against the Securities Exchange Commission (SEC) in the DC circuit asking the court to reconsider the agency’s refusal to list a spot Bitcoin ETP on the New York Stock Exchange (NYSE). In its appeal, Grayscale argued that the SEC’s ruling regarding its Bitcoin spot ETP was “arbitrary and capricious”, because it ignored the facts about the ETP and wrongly determined that the ETP’s listing would be in violation of NYSE duties. under the Securities Exchange Act of 1934.

Previously, the NYSE had filed an application for a proposed rule change with the SEC that would have allowed Grayscale to list its spot Bitcoin ETP on the exchange. The assets of the proposed ETP mainly consist of Bitcoin, the rights to acquire virtual currency tokens, virtual currency tokens and cash to cover the expenses of the ETP. To date, no spot Bitcoin ETPs have been cleared by the SEC to be listed on a registered stock exchange. A spot Bitcoin ETP would trade based on the Bitcoin price, rather than the Bitcoin futures price.

Denying the NYSE’s request to list Grayscale’s Bitcoin spot ETP, the SEC said an exchange can meet its investor protection and anti-fraud and anti-manipulation requirements “showing that the exchange has a comprehensive surveillance-sharing agreement with a regulated market of size relative to the underlying or reference Bitcoin asset “or by establishing that the Bitcoin market” inherently possesses a unique resistance to manipulation beyond the protections used by traditional commodity or securities markets. ” At the time, the NYSE said it had fulfilled its Exchange Act duties to “protect investors and the public interest” and that the exchange was “designed to prevent fraudulent and manipulative acts and practices.” The NYSE met these requirements because Bitcoin offers “new protections beyond those that exist in traditional commodity markets or equity markets” due to its fungibility, portability, and marketability. The NYSE noted that Grayscale rates its holdings based on an index composed of spot Bitcoin trading platforms subject to anti-money laundering and know-your-customer regulations. Despite these protections, the SEC concluded that these means remain insufficient and inferior to the required full surveillance-sharing agreement with a significant-sized regulated market related to Bitcoin.

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