DC Circuit judges hammered the SEC’s lawyers as they defended their decision to not approve Grayscale’s move toward a spot bitcoin ETF.

Grayscale Investments LLC participated in oral arguments on Tuesday in the United States Court of Appeals for the DC Circuit in relation to its attempts to get its popular Grayscale Bitcoin Trust (GBTC) converted to a spot bitcoin exchange-traded fund (ETF). In these oral arguments, the three presiding judges seemingly sided with Grayscale in their positioning.

The U.S. Securities and Exchange Commission (SEC) has repeatedly denied previous attempts at the introduction of a spot bitcoin ETF. This has led to Grayscale suing the SEC, alleging that the decisions have been arbitrary and inconsistent with the Commission's decision to approve Bitcoin futures ETFs.

In today’s arguments, presiding judges Chief Judge Sri Srinivasan and Judge Neomi Rao continually prodded the SEC Senior Counsel Emily Parise about the SEC’s differentiation between a futures ETF and a spot bitcoin ETF.

“[The prices] move together 99.9% of the time. So where's the gap, in the Commission's view?” asked Judge Rao.

The SEC response was that correlation does not equal causation, with its lawyers explaining that the key empirical question is whether fraud and manipulation in the spot markets affect futures in the same way so that they can rely on the surveillance of the future markets. Without that missing empirical piece, the SEC counsel said, the agency can't be sure it can rely on CME future surveillance to approve a spot ETF.

Questioning led to the pontification that the SEC had not provided sufficient evidence to explain their decision making, with Judge Rao telling Parise, “The SEC has not offered any explanation that the petitioners are wrong.”

The full record of the questioning can be listened to here.

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