SEC in the US Elects Not to Appeal Against Court’s Grayscale Bitcoin ETF Ruling

14 Oct 2023

Mitchell Nixon


According to an insider, the U.S. Securities and Exchange Commission (SEC) has decided not to challenge a recent court judgement. This judgement declared that the SEC had made a mistaken decision in refusing Grayscale Investments’ application to establish a spot bitcoin exchange-traded fund (ETF). 

Back in August, the D.C. Circuit Court of Appeals declared that the SEC’s rejection of Grayscale Investment’s request to transform the Grayscale Bitcoin Trust (GBTC) into an ETF lacked validity and should be reevaluated, deeming it an “arbitrary and capricious” dismissal. The court emphasised the necessity for federal agencies to ensure consistent treatment of similar cases. 

Circuit Judge Neomi Rao stated in August, “The Securities and Exchange Commission recently approved the trading of two bitcoin futures funds on national exchanges but denied approval of Grayscale’s bitcoin fund.”

The SEC’s choice not to pursue an appeal is likely to open the door for the agency to assess Grayscale’s application.

A spot Bitcoin ETF would offer investors the opportunity to gain exposure to the world’s leading cryptocurrency by market value, all without the need to possess it directly. The SEC has rejected all applications for spot Bitcoin ETFs, including Grayscale’s, due to the argument that applicants have not demonstrated their ability to safeguard investors against market manipulation.

Grayscale initially sought approval to transform its closed-end fund into an ETF in October 2021. GBTC, the world’s largest cryptocurrency fund, has been trading at a discount relative to its bitcoin holdings since February 2021. At one stage, this discount even reached nearly 50%, but it has since receded to approximately 17%. 

Grayscale has consistently argued that converting GBTC into an ETF would eliminate this discount by narrowing the disparity between the fund’s price and its underlying bitcoin value. ETFs operate with a creation-redemption model, allowing the generation of new ETF shares to meet demand or the redemption of shares to decrease supply.

Numerous other asset management firms, such as BlackRock (BLK.N), Fidelity, and Invesco, have comparable submissions awaiting review by the SEC for a spot Bitcoin ETF. The SEC is expected to make decisions on these applications by no later than next year.