Grayscale Emerges Victorious in Legal Dispute Against SEC, Mandating Regulatory Review of Bitcoin ETF Proposal
Mitchell Nixon
A federal appeals court decision on Tuesday mandated the Securities and Exchange Commission (SEC) to reassess Grayscale’s bid to transform its bitcoin trust into an exchange-traded fund (ETF), challenging the agency’s historic resistance to permitting listed investments in the primary digital asset’s spot market, while permitting them for futures.
Judge Neomi Rao’s opinion in the court ruling criticised the SEC’s inconsistent treatment of comparable products as “arbitrary and capricious,” highlighting that the denial of Grayscale’s proposal lacked clear justification.
The SEC was unable to adequately demonstrate why Grayscale’s bitcoin ETF application differed significantly from the futures-based funds it had previously greenlit. The SEC’s inability to prove that the spot market was potentially riskier for investors than the futures market further weakened their stance.
Grayscale’s spokesperson, Jennifer Rosenthal, hailed the court’s decision as a significant stride for American investors and the Bitcoin ecosystem. She emphasised the added security that the ETF framework could provide for those seeking exposure to Bitcoin.
“This is a monumental step forward for American investors, the bitcoin ecosystem, and all those who have been advocating for Bitcoin\exposure through the added protections of the ETF wrapper”.
The court’s ruling acknowledged the SEC’s history of rejecting proposals for listing bitcoin investment products on national exchanges. However, in June, BlackRock’s move to apply for its spot bitcoin ETF suggested that even the world’s largest asset manager believed that the SEC’s opposition could be overcome. This was followed by similar proposals from Fidelity and other fund providers.
We did an article on Blackrock’s application here.
We did an article on Fidelity’s application here.
In October 2021, Grayscale submitted an application to transition its bitcoin trust into an ETF. However, the SEC rejected the application on the grounds that Grayscale had not furnished proof of having established safeguards against potential market manipulation or related misconduct. Almost immediately, the company initiated an appeal with the federal appeals court situated in the District of Columbia. The purpose of the appeal was to seek a review of the SEC’s decision.
As of the publication date, the SEC had not made any official statements regarding the appeals court ruling. However, there are reports indicating that the commission mentioned its intention to examine the case thoroughly in order to establish its subsequent course of action. While the commission may have the chance to challenge the decision through an appeal, numerous experts have suggested that Grayscale’s initial triumph might potentially set the stage for future endorsement.
According to Alex Adelman, CEO and co-founder of Lolli, the appeals court decision is set to increase the scrutiny on the SEC’s rationale behind turning down spot Bitcoin ETF proposals.
Adelman also suggested that the surge in BTC price subsequent to this announcement might be seen as an endorsement of confidence in investment tools tied to Bitcoin’s spot market:
“Now is the time for the U.S. to embrace innovation by making bitcoin available to investors through exchange-based products or risk falling behind global powers that are moving faster to claim this advantage.”
The verdict doesn’t signify an automatic endorsement of Grayscale’s application by the SEC; it merely necessitates a renewed assessment of the application.
Great news for the cryptocurrency market and Bitcoin enthusiasts regardless.