GBTC Lawsuit: The SEC’s Response Brief


December 9, 2022 – Today the SEC filed its first legal brief as part of our lawsuit challenging their decision to deny GBTC’s conversion to a spot Bitcoin ETF.[1] This is the next milestone in our ongoing litigation following the filing of our opening brief on October 11 and the supporting amicus briefs shortly after. At Grayscale, we believe the SEC’s refusal to bring Bitcoin further into the regulatory perimeter goes against its investor protection mandate. There is little doubt that the US investment community would greatly benefit from regulated access to Bitcoin, as spot ETFs would allow investors to gain exposure to Bitcoin through the trusted, familiar, proven protections of an ETF wrapper.

 It is against this backdrop that the SEC filed its latest brief responding to our lawsuit seeking to overturn its decision. We wanted to take this opportunity to reiterate some of the arguments from our opening brief.


1) The SEC is creating an uneven playing field for investors by approving Bitcoin futures-based ETFs, while continuously denying spot Bitcoin ETFs.


Despite the fact that Bitcoin futures ETFs and spot Bitcoin ETFs do not present meaningfully different risks of fraud and manipulation, the SEC has now approved several Bitcoin futures-based ETFs, yet it has continued to disapprove spot-based Bitcoin ETF applicants. 


For example, following the recent collapse of FTX International, one of the largest crypto exchanges by volume, and the volatility that has since ensued, the index that GBTC uses (and would continue to use as an ETF) has been pricing in substantially the same way as the index used by Bitcoin futures on the CME. 



A comparison of the BRR and XBX Bitcoin price indices.
Source: Grayscale Research, from 8/21/2022 to 11/30/2022

2) In approving Bitcoin futures-based ETFs but not spot Bitcoin ETFs, the SEC has failed to abide by the Administrative Procedure Act (APA) and Securities Exchange Act of 1934 (Exchange Act).


The APA requires, in part, that the SEC treat ‘like’ situations ‘alike.’ Because both products reference the same underlying cash market, the approval of a Bitcoin futures ETF should have cleared the way for a spot Bitcoin ETF. In its order denying Grayscale’s proposal, the SEC draws a distinction between Bitcoin futures ETFs and spot Bitcoin ETFs despite the fact that both derive pricing from the same underlying spot Bitcoin markets. As a result, we believe that approval of Bitcoin futures ETFs, but not spot Bitcoin ETFs, is “arbitrary and capricious” and amounts to unfair discrimination between issuers.


As it stands, the Bitcoin ETF landscape presents an unfair disadvantage for GBTC shareholders and all other U.S. investors looking for accessible and efficient Bitcoin exposure. 

3) The SEC has not articulated a basis for the dissimilarity in its treatment of spot Bitcoin ETFs and Bitcoin futures ETFs – and, in fact, they have created a “significant market test” which is being applied inconsistently for each product type.


The SEC unlawfully disapproved Grayscale’s proposal for a spot Bitcoin ETF based solely on an inability to satisfy an extra-textual requirement that is not required for futures-based ETFs. It’s fundamentally unfair and harmful to investors for the SEC to distinguish between these similar funds without articulating a sound basis for this decision.


The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. In denying Grayscale’s GBTC conversion proposal, the SEC is failing to fulfill its mission, particularly as it relates to the protection of investors. Crypto investors are calling for more regulated options. It is time that the SEC answers that call.

What’s Next for GBTC?


We look forward to reviewing the SEC’s reply brief. Our next brief is due January 13, and final briefs are due February 3. As always, our shareholders and community can follow along at our website here.

[1] We use the generic term “ETF” to refer to exchange-traded investment vehicles, including those that are required to register under the Investment Company Act of 1940, as amended (the “‘40 Act”), as well as other exchange-traded products which are not subject to the registration requirements of the ‘40 Act.
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