The SEC has long opposed the idea of listed spot-market investments for the leading digital asset, but the US Court of Appeals for the Federal Circuit ruled on Tuesday that the SEC must review Grayscale’s application to convert its bitcoin trust into an exchange-traded fund.
The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.
Wrote Judge Neomi Rao in the court’s opinion
For the crypto community, this ruling is a watershed event. Several proposals for spot Bitcoin ETFs, which would have given investors exposure to Bitcoin without requiring them to keep the currency, have been refused by the SEC during the last decade due to concerns about market manipulation.
Grayscale’s proposal for a bitcoin ETF was “materially similar” to funds based on futures that the SEC had already authorized, and the SEC could not give enough evidence to establish otherwise. The panel wasn’t persuaded by the SEC’s argument that the spot market may be riskier for investors than the futures market.
Grayscale’s request to convert GBTC to a spot ETF was rejected by the SEC on June 29, 2022. Grayscale’s top lawyer, former US Solicitor General Donald B. Verrilli Jr., appealed the decision the following day in front of the DC Circuit Court of Appeals. Sonnenshein released a statement at the time saying the company was “deeply disappointed” and “vehemently disagreed” with the SEC’s denial of its application.
The Grayscale Bitcoin Trust manages about $14 billion, making it the biggest Bitcoin fund traded on the over-the-counter market. The continuing action with the SEC and credit worries over its parent company, Digital Currency Group (DCG), caused GBTC shares to trade at a discount of almost 50% to the net asset value earlier this year.
This is a monumental step forward for American investors, the bitcoin ecosystem, and all those who have been advocating for Bitcoin BTC 0.0% exposure through the added protections of the ETF wrapper.
Jennifer Rosenthal, a spokeswoman for Grayscale.
A spot Bitcoin ETF would allow investors to obtain exposure to Bitcoin via a standard stock market and essentially keep the currency in a brokerage account, which is seen in crypto circles as a possible doorway to mainstream institutional adoption. Grayscale and the SEC may appeal the court’s ruling from Tuesday, and they have 45 days to do so. In such event, the matter might be appealed to the Supreme Court of the United States or reheard by the whole court (known as a “en banc” panel) for a second opinion.
