Grayscale Investments on Jan. 13 called the Securities and Exchange Commission's decision denying a proposed spot market product for bitcoin "arbitrary to its core," according to a court filing.
Grayscale is suing the Securities and Exchange Commission over the SEC's order denying the conversion of the Grayscale Bitcoin Trust to a spot bitcoin exchange-traded product, and criticized an SEC brief filed earlier for falling short regarding key issues in the ongoing lawsuit.
"The commission's brief never comes to terms with the order's arbitrary premise and the discriminatory result it has produced," Grayscale said in a reply brief filed in the U.S. Court of Appeals for the District of Columbia Circuit.
Instead, the SEC "goes on for page after obfuscatory page pointing out differences between the spot bitcoin and bitcoin futures markets that have no bearing on the issue before this court," Grayscale's reply brief said.
In its initial brief dated Dec. 9, the SEC said that the commission "reasonably" treated two types of products — bitcoin futures ETPs and spot bitcoin ETPs — differently.
"The commission reasonably found that the ability to detect fraud and manipulation differs across the (Chicago Mercantile Exchange) bitcoin futures market and the bitcoin spot market," the SEC's brief said.
Grayscale argued in its filing Friday that market regulators could easily spot potential fraud.
"Any fraud or manipulation in the spot market would necessarily affect the price of bitcoin futures, thereby affecting the net asset value of an ETP holding either spot bitcoin or bitcoin futures as well as the price investors pay for such an ETP's shares," Grayscale's reply brief said.
Either CME surveillance can pick up spot-market fraud that impacts both futures and spot ETPs, "or that surveillance cannot do so for either type of ETP," Grayscale's filing said.
"There is thus no reasonable basis for concluding that CME surveillance adequately protects holders of one kind of ETP, but not the other," Grayscale's filing said.
"This court should hold unlawful and set aside the order," Grayscale's reply brief said.