Grayscale Looks To Score Major Win Against SEC Over Its Spot Bitcoin ETF — How It Could Play Out In Court

• Grayscale says it will be heading to court after its spot Bitcoin ETF application was denied by the SEC.
• The firm has an array of legal options at its disposal including a Petition of Review, an en banc hearing, and an appeal to the US Supreme Court.
• Grayscale’s legal team hints that the legal battle with the SEC could take anywhere between 12 – 24 months.

Grayscale’s application for a Bitcoin ETF was scuttled by the Securities and Exchanges Commission (SEC) but the company will not be backing down without a fight. It is readying itself for a showdown with the regulator in court, backed by a few clauses under the law.

Grayscale heads to court

Craig Salm, Grayscale’s Chief Legal Officer in an interview confirmed that the company will be contesting the decision of the SEC in rejecting its spot Bitcoin ETF application. The SEC shut down the firm’s application on June 29th on grounds that it did not do enough to prevent fraud and manipulation.

According to Salm, Grayscale immediately filed a Petition of Review which will require the courts to review the decision to deny the application. After the completion of the review, the litigation process is expected to begin and will include briefings, selection of judges, and oral arguments presented by the lawyers of both parties.

Salm notes that the case will not be filed in the district courts because the SEC is a Federal agency and as such, it will begin at the appellate courts. This has the benefit of significantly reducing the time frame for reaching a decision and Salm notes that the legal battle will not affect the relationship it has with the SEC.

“We have nothing but respect for the individuals at the SEC who have spent years working through difficult issues presented by the novelty of digital assets, and that certainly includes spot Bitcoin ETFs,” said Salm. However, “when private businesses disagree with government actions, they can appeal to the court system to make thoughtful and reasoned determinations.”

When quizzed about the potential timeframe for the case, he stated that the case could take up to 2 years to be resolved, “but could be shorter or longer.” He adds that regardless of the time frame, the strength of the firm’s argument would swing the decision in the company’s favor.

The basis of Grayscale’s Argument

Grayscale is hinging its argument in court on grounds that the SEC’s approval of futures Bitcoin ETFs and rejection of spot ETFs amounts to “unfair discrimination.” The legal team referred to the SEC’s decision as “arbitrary” because both kinds of ETFs get their prices from the same spot markets.

Grayscale’s legal team will be relying on the Administrative Procedure Act (APA) and the Securities Exchange Act of 1934. In the event that the company loses at appellate courts, it has the option to apply for an en banc hearing that will involve the entire group of judges in the district weighing in or going all the way to the Supreme Court.

The SEC first approved a futures-based ETF in October 2021 but has adopted a hard stance over spot Bitcoin ETFs. Applications from Bitwise, NYDIG, and Global X have been rejected by the Commission, spelling uncertainty for Bitcoin investors.