A senior litigation analyst at Bloomberg Intelligence believes that the odds are now in favor of Grayscale in its legal battle with the U.S. Securities and Exchange Commission (SEC).
Last year, Grayscale sued the SEC after the regulator rejected its application to convert the Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin (BTC) exchange-traded fund (ETF).
During the initial hearing at the District of Columbia Court of Appeals last week, Bloomberg Intelligence’s Elliott Stein says that Grayscale mainly argued that the SEC is inconsistent in applying its standards after approving Bitcoin futures ETF while denying spot Bitcoin ETFs.
According to Stein, the SEC countered by saying that unlike its futures counterpart, a spot Bitcoin ETF is not regulated and therefore the regulator cannot be sure that there’s no fraud or manipulation in the underlying market.
Stein emphasizes that the panel of judges focused on the SEC’s counterargument. However, the regulator appears to have come up short in providing satisfactory answers to the judges’ questions, according to Stein.
“The SEC’s argument that even though there’s this 99.9% correlation between the prices in the spot market and in the futures market, they’re not convinced that fraud in the spot market would show up the same way in the futures market. They never really clarified what that meant, but they said Grayscale needed to provide more empirical evidence of how fraud in the spot market might manifest in the futures market.
The judges pushed back on that question quite a bit and said, ‘Why do they have to show that? Why is it not enough that the prices are correlated so extensively. And in addition to that, what type of empirical evidence do they need to show?’ And the SEC did not really give a satisfactory answer for that in my opinion.”
According to Stein, Grayscale is now likely to come out on top after the SEC failed to support its main argument.
“Coming out of the argument, I think Grayscale is favored now, and I give them a 70% chance to win a ruling from the court that vacates SEC’s order rejecting their application.”
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