In an opinion released Aug. 29, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit sided with Grayscale, which had filed a petition for review after the SEC in June 2022 denied a proposed rule change filed with it by NYSE Arca to list and trade shares of the trust.
The SEC failed to adequately explain why it had approved the listing of bitcoin futures ETPs but not Grayscale's proposed product, the court said. It therefore granted Grayscale's petition and vacated the SEC's order, the opinion said.
"The Trust is ready to operate as an ETP upon Commission approval," Grayscale's letter said. "And so we hope you will agree that the best use of resources now is for the Commission to issue an order approving NYSE Arca's Rule 19b-4 filing and authorize the staff to work with Grayscale and NYSE Arca to finalize the prompt listing of the Trust's shares."
Grayscale believes that the trust's nearly one million investors "deserve this fair playing field as quickly as possible," the letter added.
If any other reason could be advanced in attempting to differentiate spot bitcoin ETPs from bitcoin futures ETPs, "we are confident that it would have surfaced by now in one of the fifteen Commission orders that rejected spot bitcoin Rule 19b-4 filings even after bitcoin futures ETPs began trading," the letter said.
In addition, the Rule 19b-4 filing relating to the Grayscale Bitcoin Trust "has now been pending for nearly three times the length permitted for Commission action under Section 19(b) of the Exchange Act," the letter said, referencing the Securities Exchange Act of 1934.
"We question whether a disapproval order that is later vacated in full by the Court of Appeals can fulfill the Commission's obligation to act within the timeframe needed to avoid deemed approval under Section 19(b)(2)(D)," the letter said. "But assuming deemed approval does not apply — at least when the Commission promptly revisits the filing in light of the court's reasoning — we believe the Commission should take three points into account as it considers next steps."
First, each day that goes by without listing the trust's shares on NYSE Arca is another day in which the trust's existing investors "bear unjustified harm in the form of shares that trade at a substantial discount to net asset value," the letter said.
Secondly, U.S. investors desiring access to regulated bitcoin investment products shouldn't be forced into "less efficient and more complicated product structures" just because they are the only ones yet to secure SEC approval, the letter said.
And, thirdly, the SEC in recent weeks has received Rule 19b-4 filings relating to several proposed spot bitcoin ETPs, each of which are looking to compete with the trust, the letter said.
"As noted in Grayscale's comment letters responding to these filings, the listing exchange in each proposes to enter into a surveillance-sharing agreement with a major U.S. spot bitcoin trading venue," Grayscale's letter said. Grayscale's comment letters explain that the SEC's prior bitcoin futures ETP approval orders make clear that a surveillance-sharing agreement with the Chicago Mercantile Exchange alone is sufficient, the letter said.
An SEC spokesman declined to comment Wednesday regarding Grayscale's letter.