U.S. Court of Appeals

The SEC must submit its brief by Nov. 9. After that, Grayscale will then submit a reply brief on Nov. 30 before both parties submit a final brief on Dec. 21.

Digital asset manager Grayscale has filed its opening brief against the U.S. Securities Exchange Commission (SEC) to challenge its decision denying Grayscale’s application to convert the Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin ETF.

The world’s largest digital asset management firm filed its opening legal brief on Oct. 11 in the U.S. Court of Appeals in the District of Columbia Circuit, in which it claimed the SEC’s knockback to be “arbitrary, capricious and discriminatory.”

Grayscale argued that the SEC treats spot Bitcoin Exchange-Traded Products (ETPs) with “special harshness” and is doing so “in excess of its statutory authority.”

Attorneys for Grayscale argued that several Bitcoin Futures ETFs that have been previously approved by the SEC generate their prices based on the same indices as the spot Bitcoin ETF.

They stated that the SEC could not rationally conclude that Bitcoin Futures ETFs do not take on “the very same risks in the very same market” as the spot Bitcoin ETF, adding:

“Although Bitcoin may be a relatively new asset, the legal issue here is straightforward. The Commission has violated the APA’s most basic requirements by failing to justify its vastly different treatment of Bitcoin Futures ETPs and spot Bitcoin ETPs.”

Grayscale also argued that the SEC’s “significant-market test” — one which assesses whether an exchange’s proposal to list an ETP is “designed to prevent fraudulent and manipulative acts and practices” – is “flawed” and that the SEC “set the bar so high” that it couldn’t possibly be satisfied.

Attorneys for Grayscale also noted that this significant-market test only applies to Bitcoin-related ETPs — which led them to believe that they have been discriminated against.

Grayscale also argued the SEC’s decision “harms the 850,000 investors who own shares in the Trust”:

“Given that the Commission did not approve the Trust to trade as an ETP on the Exchange, the value of its shares cannot closely track the value of the Trust’s underlying Bitcoin assets— depriving Trust shareholders of billions of dollars in value.“

“There is simply no justification for continuing to inflict such serious investor harm,” the brief stated.

Related: Grayscale legal officer says Bitcoin ETF litigation could take two years

The filing in the U.S. Court of Appeals comes after the SEC officially denied Grayscale’s application to convert GBTC to a spot Bitcoin ETF on Jun. 29.

On the same day, Grayscale initiated litigation by filing a “Petition For Review.”

According to Grayscale, the SEC must submit its brief by Nov. 9. Grayscale will then submit a reply brief on Nov. 30 before both parties submit a final brief on Dec. 21.

Grayscale had $26.4 billion in assets under management (AUM) in Mar. 2022.