Grayscale’s GBTC up 10% after hearing against the SEC

Mar 7, 2023

Lawyers for Grayscale and the SEC went before a federal appeals court Tuesday over the company’s proposal to launch the country’s first-ever Bitcoin spot ETF (exchange-traded fund.)

Bitcoin spot ETFs aren’t legal in the U.S.— the agency has shot down over a dozen applications for one. So this case between Grayscale and the SEC is kind of a BFD.

And the consensus is in: the SEC’s argument against Grayscale was sh*t. “We haven’t seen any evidence that Grayscale’s argument is flawed,” said one of the judges, all of whom seemed to question the agency’s logic.

But first, what’s Grayscale again? It’s a digital asset investment firm that manages the largest Bitcoin trust ($14B) on the stock market. Investors can buy GBTC (shares of a fund comprised of Bitcoin that is supposed to track the price of the real thing) and gain indirect exposure to the asset without having to buy BTC directly, store it, etc.

But GBTC depegged from the asset’s price and plummeted in value, and now investors are stuck with these shares because (here’s the big catch) they can’t swap GBTC out for anything, even for actual Bitcoin.

Grayscale doesn’t have a redemption program in place. And it says investors are screwed unless the SEC grants its proposal to convert to a Bitcoin spot ETF.

spot ETF would:

  • Allow investors to still have exposure to Bitcoin without buying it directly
  • More accurately track the market price of the actual asset
  • Better protect investors, Grayscale says, and help drive mass adoption
  • Be cheaper; investors wouldn’t have to pay a steep 2% management fee or invest a minimum $50K
  • Let investors instantly redeem their Bitcoin; it’d unlock ~$4B

The SEC rejected Grayscale’s proposal in June, though, and the company immediately sued the agency. And here we are.

Okay now that we’re on the same page, here’s what happened Tuesday.


At its center was the fact that the SEC approved a Bitcoin Futures ETF managed by the Chicago Exchange Mercantile (CEM) in April 2022, and so the agency’s rejection of its own proposal was arbitrary.

Bitcoin Futures ETFs let investors speculate about what Bitcoin’s future price will be, bet on it, and then either buy or sell at a predetermined date.

The SEC approved CEM’s plans, which included guidelines on how it would prevent fraud/manipulation around its fund. That means the futures market is surveilled, surveillance that could also detect manipulation in the spot market.

So why green light one and not the other?


As a reminder, the SEC and the crypto space have more beef than your nearest Arby’s. #notanad

So there’s a political tinge to all this: Web3 folks think the SEC and chairman Gary Gensler are unfairly trying to keep the industry from flourishing, while the SEC says it’s working to protect investors from a volatile market.

The lawyer said Grayscale hasn’t provided the right kind of market data to show that a Bitcoin spot ETF could guard against manipulation. She also said Grayscale’s claim that the futures and spot markets are correlated isn’t supported.

But a judge said the SEC needs to clarify exactly what kind of data Grayscale needs to provide.

“It seems the SEC should need to explain why they are wrong,” one judge said.

Another asked if the court ruled in Grayscale’s favor, will the SEC approve its Bitcoin spot ETF? Or rescind its approval of the Bitcoin Futures ETF? 👀 The lawyer said she couldn’t say.

So now what?

GBTC shares soared 10% before dropping a tad after the hearing concluded. That means people likely think Grayscale played itself well during the hearing. A Bloomberg analyst said the company is now 70% favored to win this case.

But we won’t know the court’s decision until late summer, most likely.