A federal appeals court ruled on Tuesday that the U.S. securities regulator’s denial of Grayscale Investments’ request to establish a spot bitcoin exchange-traded fund (ETF) was incorrect. This groundbreaking ruling can open doors for introducing the first product.
“Landmark Victory: Court Challenges SEC Denial of Grayscale’s Bitcoin ETF”
“Bitcoin ETF Progress: Court Ruling Questions SEC’s Decision”
“Bitcoin Price Surges After Court Deems SEC Wrong on ETF Rejection”
“Crypto Industry Celebrates as Court Challenges SEC’s Bitcoin ETF Denial”
“SEC’s Denial of Grayscale’s Bitcoin ETF Rejected by Appeals Court”
A panel of three judges from the District of Columbia Court of Appeals in Washington found that the Securities and Exchange Commission (SEC) needed to sufficiently clarify its rationale for denying Grayscale’s offering, emphasizing that a review of its decision was necessary.
Following this news, the value of Bitcoin, the world’s largest cryptocurrency, surged by over 6%, reaching $27,858. The envisioned spot bitcoin ETF would mirror the underlying market price, exposing investors to the digital asset without purchasing the currency directly.
The SEC had previously rejected all proposals for bitcoin ETFs, including Grayscale’s, asserting that they did not meet the agency’s standards for preventing market manipulation.
It’s important to note that while this ruling doesn’t guarantee automatic approval for Grayscale’s ETF, it significantly bolsters the decade-long campaign within the industry to advance a Bitcoin ETF product. Grayscale CEO Michael Sonnenshein said the court’s decision marks a “historic milestone for American investors.”
Grayscale is currently examining the details and planning its “next steps with the SEC,” according to a company spokesperson. The SEC has a 45-day window to contest the ruling. An official spokesperson from the agency conveyed that they are evaluating the court’s verdict to determine their subsequent actions.
The crypto sector promptly celebrated the verdict. Numerous other asset management firms, including BlackRock (BLK.N), Fidelity, and Invesco, have similar filings awaiting SEC consideration for spot bitcoin ETFs.
Ji Kim, General Counsel and Head of Global Policy at the Crypto Council for Innovation emphasized that this ruling carries significance beyond Grayscale and bitcoin, as it sets a legal precedent for the broader cryptocurrency industry.
The SEC I had declined Grayscale’s application for a spot bitcoin ETF in June 2022, citing inadequacies in meeting anti-fraud and investor protection criteria. This rationale was also applied to denying many other proposals for comparable products, including those from Fidelity and VanEck.
Grayscale contested the SEC’s decision, arguing that since the agency had previously sanctioned certain surveillance agreements to thwart fraud in bitcoin futures-based ETFs, a similar setup should suffice for Grayscale’s spot fund. This assertion was based on the reliance of both spot and futures funds on bitcoin’s price.
The court verdict revealed that the SEC still needed to clarify its disagreement with Grayscale’s claim that the Bitcoin spot and futures markets displayed a 99.9% correlation.
In its opinion, Judge Neomi Rao of the D.C. Court of Appeals stated, “The Commission’s unexplained discounting of the obvious financial and mathematical relationship between the spot and futures markets falls short of the standard for reasoned decision-making.”
This legal triumph is the crypto industry’s second major victory in recent weeks, following a ruling in July that determined Ripple Labs had not violated federal laws by selling its XRP token on public exchanges. The SEC plans to appeal that verdict.
Should the SEC choose to appeal the Grayscale ruling, the case would be escalated to either the U.S. Supreme Court or receive a comprehensive review by the entire D.C. appeals court.
If the SEC opts against appealing, the court would release a mandate outlining the execution of its decision. This could involve instructing the SEC to endorse the application or reconsider Grayscale’s proposal, where rejection on alternative grounds remains plausible.
The future impact of this ruling on proposals, such as those by BlackRock and other firms, submitted in June for spot bitcoin ETFs is yet to be determined. The SEC still needs to issue its verdict on those applications.