An appeals court in the United States ruled on August 29, 2023, that the Securities and Exchange Commission (SEC) erred in its denial of Grayscale Investments’ application to create a standardized spot Bitcoin exchange-traded fund (ETF).
Despite Grayscale’s product being denied by the Securities and Exchange Commission (SEC), the three-judge panel of the District of Columbia Court of Appeals in Washington has ruled that the SEC’s decision should be reviewed for not providing an in-depth explanation of its reasoning.
The court, the District of Columbia Court of Appeals, said that the SEC’s decision was “arbitrary and capricious” because it failed to adequately explain why it treated bitcoin futures ETFs differently from spot bitcoin ETFs.
In the case of bitcoin spot ETFs, these funds track bitcoin’s price directly, rather than through bitcoin futures contracts, as this is a different type of ETF. A futures contract is an agreement that specifies a price at which an asset will be bought or sold at a future date.
Several bitcoin futures ETFs have been approved by the SEC, but spot Bitcoin ETF applications have been denied.
There is a 45-day appeal period for the SEC. In response to the court’s decision, an agency spokesperson said the agency is reviewing its next step.
A report from the SEC warns that Bitcoin markets are unregulated and there is a risk of fraud and manipulation.
In a separate court report, the court noted that the SEC had not “provided a reasoned explanation” for its decision and that its concerns were not “sufficiently well-founded.”
Greyscale and the cryptocurrency industry have won a major victory thanks to the court’s ruling. There is a possibility of the first Bitcoin ETF being approved in the US as a result of this decision. As a result of the ruling, the bitcoin price is likely to go up significantly.
Bitcoin prices surged on the news of the ruling, rising to over $48,000.
It is still unclear when Grayscale’s application will be decided by the SEC. However, the court’s ruling is a positive sign for the prospects of a spot bitcoin ETF being approved in the US.
“The Crypto Council for Innovation and Ji Kim, its general counsel and head of global policy, see this decision as going beyond Grayscale or Bitcoin.
In light of the court’s decision, here are some implications
- In the event that the Bitcoin ETF is approved by the Securities and Exchange Commission, it could make it easier for investors to gain exposure to the crypto market as the first Bitcoin ETF will be approved.
- A move like this could boost the price of Bitcoin and prove to investors that it is a legitimate cryptocurrency.
- As a result, institutional investors could be encouraged to invest in Bitcoin to increase their returns.
- As a result, new financial products and services relating to Bitcoin could be developed as a result.
The court’s ruling is a significant development in the cryptocurrency space and it will be closely watched by investors and regulators around the world.
Background Behind Crypto Win
The background behind the news that the US court says SEC wrong to deny Grayscale’s spot bitcoin ETF proposal is as follows:
- Currently, Grayscale Investments is one of the leading digital asset management firms in the world, managing over $40 billion worth of assets. In 2017, Grayscale launched the Grayscale Bitcoin Trust (GBTC), which is a security that tracks the price of Bitcoin.
- In 2021, Grayscale applied to the SEC for approval to convert GBTC into a spot bitcoin ETF. A spot bitcoin ETF would be a more efficient way for investors to gain exposure to bitcoin, as it would not require them to buy and sell bitcoin futures contracts.
- Grayscale’s application for a license was denied by the Securities and Exchange Commission in June 2022, citing concerns over the potential for fraud and manipulation in the Bitcoin market.
- Grayscale appealed the SEC’s decision, and on August 29, 2023, a federal appeals court ruled that the SEC was wrong to deny the application.
Despite the SEC’s failure to adequately explain why futures bitcoin ETFs were treated differently from spot bitcoin ETFs, the court found the SEC’s decision “arbitrary and capricious.”
Grayscale and the cryptocurrency industry have won a major victory with the court’s ruling. There is a possibility that the first Bitcoin ETF in the US could be approved as a result. As a result of the ruling, Bitcoin’s price may also be affected significantly. The price of Bitcoin surged to over $48,000 after the ruling was announced.