US Court Rules in Favor of Grayscale in Bitcoin ETF Lawsuit

A recent court ruling in favor of Grayscale has sparked implications for the SEC's stance on bitcoin ETFs and raised questions about the approval of spot bitcoin ETFs. The ruling highlights the SEC's arbitrary treatment of similar products and could have a significant impact on the future of cryptocurrency regulation.

How will the court ruling in favor of Grayscale impact the SEC’s stance on bitcoin ETFs?

The court ruling in favor of Grayscale could impact the SEC’s stance on bitcoin ETFs by exposing the SEC’s inconsistency in its treatment of similar products. The court stated that the SEC’s denial of Grayscale’s proposal was arbitrary and capricious. This ruling may prompt the SEC to reevaluate its criteria for approving bitcoin ETFs and potentially be more open to considering spot bitcoin ETFs in the future.

What are the implications of the court ruling for the approval of spot bitcoin ETFs?

The implications of the court ruling for the approval of spot bitcoin ETFs are significant. The ruling suggests that the SEC’s rejection of Grayscale’s application for a spot bitcoin ETF was unlawful and lacked adequate explanation. This raises the likelihood of future approvals for spot bitcoin ETFs and could pave the way for other asset managers, such as BlackRock, Fidelity, and Invesco, to have their filings approved by the SEC. It also highlights the growing demand and calls for a spot bitcoin ETF, making it increasingly difficult for the SEC to resist approval.

How might the court ruling affect other companies with pending spot bitcoin ETF applications?

The court ruling could have implications for other companies with pending spot bitcoin ETF applications. Companies like Fidelity, SkyBridge Capital, and Valkyrie Investments, whose spot bitcoin ETF applications were rejected by the SEC, could potentially use the court ruling as a basis for challenging the SEC’s decision. The ruling brings into question the SEC’s reasoning and consistency in treating similar products, which could lead to a reevaluation of these companies’ applications. It may also encourage other companies with pending applications to be more confident in pursuing their spot bitcoin ETF proposals and potentially increase the chances of approval in the future.

Full summary

The US Court of Appeals for the D.C. Circuit has ruled in favor of Grayscale in a lawsuit against the SEC. This ruling has implications for the SEC's stance on bitcoin ETFs and raises questions about future decisions regarding the approval of spot bitcoin ETFs. The court states that manipulation in the spot and futures markets for bitcoin would affect the price of bitcoin futures. The court declares the denial of Grayscale's proposal as arbitrary and capricious due to the SEC's failure to explain its differing treatment of similar products.

In a separate context, U.S. federal appellate court judges questioned the SEC's rejection of Grayscale Investment's application for a spot bitcoin exchange-traded fund. The SEC rejected Grayscale Investment's application to convert its flagship spot Grayscale Bitcoin Trust into an ETF. Grayscale argues that the same surveillance agreements used for bitcoin futures-based ETFs should be satisfactory for a spot fund. A spot bitcoin ETF would track bitcoin's underlying market price. Grayscale's lead counsel argues that a spot bitcoin ETF would better protect investors. The SEC argues that it lacks data to determine if surveillance agreements could pick up fraud and manipulation in spot markets. The case's outcome could impact the approval of future spot bitcoin ETFs. Other companies like Fidelity, SkyBridge Capital, and Valkyrie Investments had their spot bitcoin ETF applications rejected by the SEC. Valkyrie Investments does not expect a spot bitcoin ETF to be approved within the next year. Grayscale's CEO expects a final ruling on the case in the fall and believes it will be in their favor. Grayscale Bitcoin Trust has $14 billion in assets under management.

In another article, Majority Whip Tom Emmer and Representative French Hill sent a letter to SEC Chair Gary Gensler addressing Chair Gensler's regulatory hypocrisy and inconsistency. The letter expresses concern over the denial of bitcoin spot ETP applications and urges the SEC to provide consistency in its treatment of the marketplace. The SEC's approach to cryptocurrency regulation has been criticized. Emmer and Hill are members of the House Financial Services Committee.

The U.S. securities regulator was wrong to reject an application from Grayscale Investments to create a spot bitcoin exchange-traded fund, a federal appeals court ruled. The Securities and Exchange Commission (SEC) failed to fully explain its reasoning when denying Grayscale's product and should review its decision. A spot bitcoin ETF would track its underlying market price, giving investors exposure to the digital asset without having to buy the currency. The court decision is a 'historic milestone for American investors,' Grayscale CEO Michael Sonnenshein said in a statement. The SEC has 45 days to appeal the ruling. The cryptocurrency industry was quick to hail the ruling. Several other asset managers, including BlackRock, Fidelity and Invesco, have similar filings pending with the SEC for a spot bitcoin ETF. The SEC rejected Grayscale's application for a spot bitcoin ETF in June 2022. Grayscale sued the SEC, arguing that because the agency previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should also be satisfactory for Grayscale's spot fund. The court said in its ruling that the SEC failed to explain why it disagreed with Grayscale's assertion that the bitcoin spot and futures markets are 99.9% correlated. The ruling is the second major legal victory for the crypto industry in recent weeks, after a judge ruled in July, in a case brought by the SEC, that Ripple Labs did not violate federal laws by selling its XRP token on public exchanges. If the SEC appeals the Grayscale ruling, the case would go either to the U.S. Supreme Court or a review by the entire D.C. appeals court. It remains to be seen how the ruling might affect proposals submitted in June by BlackRock, the world's largest asset manager, and several other firms to offer spot bitcoin ETFs.

A federal circuit court ruled that the SEC's rejection of Grayscale Investments' proposed bitcoin exchange-traded fund was unlawful. The ruling doesn't force the SEC to approve the filing for a spot bitcoin ETF, but it raises the likelihood of approval in the future. Calls for a spot bitcoin ETF have grown louder, making resistance increasingly difficult for the SEC. The SEC could appeal the decision, reject the filing again while addressing concerns raised by the court or by changing their reasoning, or even give bitcoin futures ETFs the boot. The path of least resistance for the SEC is to approve spot bitcoin ETFs. The first attempt at a spot bitcoin ETF was made by the Winklevoss twins in 2013, but it was rejected by the SEC. The SEC rejected all bitcoin-related ETFs until approving a bitcoin futures ETF in 2021. Grayscale Bitcoin Trust (GBTC) launched in 2013 and peaked at $40 billion in assets under management in 2021. GBTC offers exposure to bitcoin without opening an account on cryptocurrency exchanges. Grayscale's GBTC traded at a premium when bitcoin was in high demand and at a discount when bitcoin's price dropped. Grayscale filed to convert GBTC to an ETF, but the SEC rejected the filing. Grayscale sued the SEC for rejecting its ETF filing. Grayscale's lawsuit claimed the SEC's inconsistency in applying the significant market test for spot bitcoin ETFs. The court ruled that the SEC failed to adequately explain its different treatment of similar products. The lawsuit vacates the SEC's denial and forces the SEC to review Grayscale's proposal again. The SEC needs to explain the difference in exposure to manipulation between futures-based and spot bitcoin ETFs. The SEC concluded that Grayscale failed the significant market test, while bitcoin futures ETFs passed. GBTC investors welcomed the outcome of the lawsuit as it increases the likelihood of selling shares closer to NAV. Bitcoin investors celebrated the ruling as it raises the likelihood of a spot bitcoin ETF and better tracking of bitcoin prices. A spot ETF may also open doors for investors in accounts that can't currently access crypto markets.