- The D.C. Circuit Court rules in favor of Grayscale Investments, overturning the SEC’s decision to deny a Bitcoin ETF offering.
- Experts speculate that the landmark decision may pave the way for approval of spot Bitcoin ETFs in the U.S., with applications from other major financial firms still under review.
A Judicial Milestone: The Underpinnings of the Grayscale ETF Decision
In a decisive judicial ruling, the D.C. Circuit Court unanimously supported Grayscale Investments, effectively quashing the U.S. Securities and Exchange Commission’s (SEC) prior decision to deny the firm’s Bitcoin exchange-traded fund (ETF). The ruling posits a critical development for the cryptocurrency sphere, lending judicial validation to asset vehicles similar to Grayscale’s Bitcoin Trust (GBTC).
Some have asked whether they could revoke the bitcoin futures ETFs, highly unlikely in our view, esp given their recent openness to Ether futures ETFs. In the end, I know it and you know it and even animals know it- the best move is to just approve the damn things already. https://t.co/fZCOIur4of
— Eric Balchunas (@EricBalchunas) August 29, 2023
Judge Neomi Rao articulated that Grayscale’s proposed Bitcoin ETF was “materially similar” to Bitcoin futures products that have already received SEC approval. The Court took umbrage with the SEC’s rationale for denial, which cited concerns about
“fraudulent and manipulative acts and practices.”
The Court deemed this justification inadequate, mandating a re-examination by the SEC.
THIS JUST IN: The D.C. Circuit ruled 3-0 in favor of Grayscale and $GBTC. This is a monumental step forward for all who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper. Read the decision: https://t.co/ulAtcsad2G pic.twitter.com/BNZABvM7tw
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— Grayscale (@Grayscale) August 29, 2023
It’s worth delineating that a spot Bitcoin ETF offers direct exposure to Bitcoin, while a futures-based Bitcoin ETF exposes the investor to contracts that bet on the future price of Bitcoin. The SEC has previously approved futures-based Bitcoin ETFs but has been reticent to approve spot Bitcoin ETFs. Notably, other financial juggernauts like BlackRock, ARK Invest, and VanEck have applications for spot Bitcoin ETFs that are pending SEC review.
The SEC’s ability to continue delaying decisions on these applications is not infinite. In fact, the commission can push the final deadline for approval only until March 2024. Moreover, the SEC has the option to appeal the Court’s ruling, but industry experts such as Tim Bevan, CEO at ETC Group, posit that spot Bitcoin ETFs’ entry into the U.S. market has become more a question of ‘when’ than ‘if.’
The fallout from the Court’s decision had immediate market repercussions. Bitcoin’s price witnessed a 6% surge, momentarily boosting a languishing cryptocurrency market. The market reaction serves as a de facto “vote of confidence” for spot investment vehicles linked to Bitcoin, according to Lolli CEO and co-founder Alex Adelman.
What’s less clear are the SEC’s subsequent moves. It may opt for an “en banc” hearing, involving all D.C. Circuit judges, or refile to make its concerns more granular—potentially targeting issues like Bitcoin custody or settlement, which are less pertinent to futures ETFs.
Whether or not the SEC will find new grounds for denial remains to be seen. However, the Grayscale decision stands as a fulcrum that could tilt the scales in favor of a more accommodating regulatory landscape for Bitcoin ETFs in the United States.
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