Grayscale's breakthrough: What victory means for Bitcoin ETFs in the U.S.

September 6, 2023

Last Tuesday, the Court of Appeals in the District of Columbia ruled that the Securities and Exchange Commission (SEC) was not within its rights to disapprove Grayscale Investments' application for a publicly traded (Bitcoin) fund. This ruling has attracted much attention from both the crypto world and the world of asset management.

What is the story behind Grayscale's application?

In the previous year, the SEC denied Grayscale the opportunity to convert their Bitcoin Trust into an ETF, intended for listing on NYSE's Arca market. Although the SEC has approved other Bitcoin ETFs, Grayscale's proposal relies on the current price of bitcoin - a concern to the SEC because of possible market manipulation. Grayscale took the SEC to court, leading to the recent ruling.

Grayscale's argument was that the rules governing Bitcoin futures ETFs should be equally applicable to their spot ETF. They stressed that a spot bitcoin ETF would be a safer option for investors thanks to stricter market oversight.

The court's ruling

The court concluded that Grayscale's proposal was similar in nature to previously approved Bitcoin futures ETFs. Given this similarity, they found that the SEC's decision to reject the proposal was unwarranted without a clear explanation.

Grayscale's breakthrough: What victory means for Bitcoin ETFs in the U.S.

Both parties, Grayscale and the SEC, now have 45 days to appeal. Should Grayscale ultimately prevail, the court may order the SEC to reconsider or even approve the application.

The implications of Grayscale's victory

Companies have been filing applications for spot Bitcoin ETFs for more than two years, but so far since 2021, the SEC has rejected more than 30 proposals - a 100% rejection rate. However, in June, investor sentiment got a big boost when BlackRock, the world's largest asset manager with about $9 trillion in assets under management, filed an application. Of its previous 575 ETF applications, the company has had only one not accepted. It now remains to be seen how the SEC will respond and what follow-up steps they will take.