Key takeaways:
- Grayscale triumphs over the SEC, advancing Bitcoin ETF prospects.
- Legal victory accelerates potential mainstream Bitcoin investment.
In a significant win for crypto asset manager Grayscale Investments, the company has achieved a favorable outcome against the United States Securities and Exchange Commission (SEC) in its pursuit to convert its Grayscale Bitcoin Trust (GBTC) from an over-the-counter product to a listed Bitcoin exchange-traded fund (ETF).
The SEC had previously rejected Grayscale’s application, citing concerns about preventing fraudulent and manipulative practices. Grayscale had taken legal action in response, leading to a reversal of the SEC‘s decision.
According to court documents filed on August 29, U.S. Court of Appeals Circuit Judge Neomi Rao has granted Grayscale’s petition for review and invalidated the SEC’s denial of the GBTC listing application. In earlier proceedings, Judge Rao had criticized the SEC for not providing a sufficient explanation for its stance against Grayscale.
However, it’s important to note that this court order doesn’t guarantee the immediate listing of a Grayscale Bitcoin ETF. In response to this development, a spokesperson from Grayscale expressed enthusiasm, describing it as a significant advancement for Bitcoin exposure in the U.S. and acknowledging that they would work closely with their legal advisors to determine the next steps in coordination with the SEC.
A spot Bitcoin ETF is viewed within the cryptocurrency community as a potential means to encourage mainstream institutional adoption. This type of ETF would allow investors to access Bitcoin through a conventional stock exchange and hold it in brokerage accounts.
Grayscale’s argument hinged on the inconsistency in the SEC’s treatment of spot and futures Bitcoin ETFs, despite both types carrying similar risks and relying on the same underlying spot markets. In contrast, the SEC maintained that spot Bitcoin ETFs are more vulnerable to manipulation and fraud due to the lack of regulation in the underlying spot market.
The SEC also asserted that the regulated Chicago Mercantile Exchange, where Bitcoin futures ETFs are traded, has robust mechanisms in place to counter fraud and manipulation.
The Grayscale Bitcoin Trust is the largest Bitcoin fund traded over-the-counter, boasting assets under management exceeding $14 billion. Earlier this year, the value of GBTC shares experienced a nearly 50% drop in relation to the net asset value due to ongoing litigation with the SEC and concerns about its parent company, Digital Currency Group (DCG).
In its verdict, the court criticized the SEC’s denial as “arbitrary and capricious,” stating that the regulator had failed to provide a reasonable explanation for approving Bitcoin Futures ETFs while rejecting spot-based ones.
