SEC Stands Down, Court Ruling on Grayscale Bitcoin ETF Goes Unchallenged: Report

Key Takeaways

• The U.S. SEC decides not to appeal the court ruling against its rejection of Grayscale Investments’ spot Bitcoin ETF application.
• This move is seen as a potential shift in the SEC’s approach towards Bitcoin ETFs
• If the SEC moves towards approving a spot Bitcoin ETF, it could catalyze a wave of institutional investment and possibly trigger a substantial increase in Bitcoin’s price.
• It may pave the way for other asset managers, like BlackRock and Fidelity, with similar filings, to gain approval for their spot Bitcoin ETFs.

In a pivotal move, the U.S. Securities and Exchange Commission (SEC) has opted not to appeal a recent court ruling that criticized the agency for rejecting Grayscale Investments’ application to establish a spot bitcoin exchange-traded fund (ETF), Reuters reports citing a source familiar with the matter. This decision comes after a closely watched case, and it has significant implications for the cryptocurrency market, particularly Bitcoin.

The District of Columbia Court of Appeals in Washington had delivered a verdict in August, stating that the SEC erred in its rejection of Grayscale’s proposed bitcoin ETF. The crypto community had been eagerly awaiting the SEC’s response, as the midnight deadline yesterday marked the last opportunity for the agency to challenge its court loss against Grayscale Investments.

Why does it matter?

This development paves the way for the SEC to reevaluate Grayscale’s application, potentially indicating a shift in the SEC’s stance towards spot bitcoin ETFs. The court’s decision highlighted the inconsistency in the SEC’s reasoning and underscored the need for a transparent evaluation process.

If the SEC moves towards approving a spot Bitcoin ETF, it could catalyze a wave of institutional investment and possibly trigger a substantial increase in Bitcoin’s price.

A spot bitcoin ETF offers investors exposure to the world’s leading cryptocurrency by market capitalization without requiring them to own it directly. However, the SEC has consistently denied all spot bitcoin ETF applications, citing concerns about the applicant’s ability to safeguard investors against market manipulation.

Grayscale contested the SEC’s rejection in court, arguing that the surveillance agreements already approved by the agency for bitcoin futures-based ETFs should also suffice for their proposed spot ETF. They emphasized that both spot and futures funds are reliant on bitcoin’s price and hence should be treated similarly.

The appeals court sided with Grayscale, asserting that the SEC’s denial lacked substantial justification and clarity on the material differences between the two arrangements. The court is expected to issue a mandate detailing how its decision should be implemented, likely instructing the SEC to revisit Grayscale’s application.

This development not only impacts Grayscale but also has implications for other asset managers in the industry. Notably, major players like BlackRock, Fidelity, VanEck, and Invesco have similar filings awaiting SEC approval for a spot bitcoin ETF. The SEC is slated to make decisions on these applications by next year, at the latest.

The SEC’s decision not to appeal this crucial ruling has set the stage for potential shifts in regulatory attitudes toward Bitcoin ETFs, raising hope among investors and industry stakeholders. However, the path forward remains dynamic, and the crypto community awaits further updates from the SEC.

Read Also: SEC Hits Pause, Jay Clayton Predicts Spot Bitcoin ETF as ‘Inevitable’