D.C. Circuit overturns SEC decision on SPIKES futures, deems it “arbitrary and capricious.”

D.C. Circuit overturns SEC decision on SPIKES futures, deems it "arbitrary and capricious."

The SEC Faces Setback in Defining SPIKES Index Securities

The U.S. Securities and Exchange Commission (SEC) has once again faced a setback in its attempts to regulate the blockchain industry. On July 28, the D.C. Circuit overturned a previous ruling by the SEC, deeming their order to classify SPIKES Index securities as “futures” rather than “securities futures” as “arbitrary and capricious.”

The SEC’s order, issued in 2020, exempted the SPIKES Index, a stock volatility index, from being classified as a security futures. This exemption aimed to eliminate heavy taxes and regulatory requirements attached to the term ‘security’, with the intention of fostering competition among volatility indexes.

However, Chief Judge Sri Srinivasan of the D.C. Circuit declared the SEC’s exemption as “arbitrary and capricious.” According to Srinivasan, the SEC failed to adequately explain its rationale for the exemption and neglected to consider important aspects of the problem. Additionally, the court pointed out that the SEC did not consider the potential confusion among market participants resulting from the grant of exemptive relief.

As a result of this decision, SPIKES Index futures are now classified as “securities futures” rather than simply “futures.” Market participants have a three-month period to wind down their existing transactions in light of this reclassification.

This ruling may have implications beyond the SPIKES Index case, particularly for ongoing legal battles between crypto firms and the SEC. One such example is the challenge mounted by Grayscale, the pseudonymous lawyer “MetaLawMan” highlights. Grayscale seeks to overturn the SEC’s denial of its request to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin exchange-traded fund (ETF). Notably, two of the judges who invalidated the SEC order are also reviewing Grayscale’s case.

This recent decision showcases that the SEC is subject to legal defeats, thereby highlighting the potential limitations of its scope within the blockchain industry. Bloomberg’s ETF analyst, Eric Balchunas, suggests that this ruling demonstrates the SEC’s vulnerability in court cases.

It raises an important question: Does SEC Chair Gary Gensler have the final say in crypto regulation? This ruling challenges the notion that the SEC’s decisions are incontrovertible and presents an opportunity for a more nuanced understanding of the SEC’s authority within the blockchain industry.


The recent overturning of the SEC’s order in the SPIKES Index case marks another setback for the regulator in its efforts to regulate the blockchain industry. This decision highlights the potential limits of the SEC’s authority and its vulnerability to legal challenges. As the SEC continues its regulatory initiatives, it is crucial to strike a balance between promoting innovation and protecting investors. The outcome of ongoing legal battles, like the one between Grayscale and the SEC, will undoubtedly shape the future of crypto regulation.