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The United States Securities and Exchange Commission does not plan to appeal the decision in the Grayscale case, boosting the chances of the Grayscale Bitcoin Trust turning into an ETF.
The price of Bitcoin registered an immediate increase after the news broke.
SEC Not Planning To Appeal
The United States Securities and Exchange Commission has decided against appealing a recent court ruling that stated the commission was wrong in rejecting an application from Grayscale Investments to create a stop bitcoin exchange-traded fund (ETF). The court, in its ruling, was extremely critical of the SEC for not letting Grayscale convert its bitcoin trust into an investor-friendly exchange-traded fund. The case between the SEC and Grayscale has been closely watched by the crypto industry, which has been trying to advance ETFs for several years.
The Securities and Exchange Commission had until Friday midnight to decide on whether it wanted to challenge the court’s decision. However, the SEC let that deadline pass without filing an appeal. The price of Bitcoin pushed past the $27,000 mark following the news of the SEC deciding against appealing.
A spot bitcoin ETF would allow investors to gain exposure to the world’s largest cryptocurrency without actually owning the asset. So far, the SEC has denied all spot bitcoin ETF applications, including the one by Grayscale. The Securities and Exchange Commission stated that the applicants have not shown they can protect investors from market manipulation as the reason behind the rejections.
SEC Decision Arbitrary And Capricious
Following the SEC’s denial, Grayscale sued the regulator, arguing that the agency had previously approved certain surveillance agreements designed to prevent fraud in bitcoin futures-based ETFs. Grayscale argued the same setup should be satisfactory for Grayscale’s spot bitcoin ETF since both spot and futures funds rely on bitcoin’s price.
The DC Circuit Court of Appeals seemed to agree with Grayscale, ruling that the Security and Exchange Commission’s denial of the application to convert the Grayscale Bitcoin Trust (GBTC) into an ETF was invalid. The court stated that the decision must be reviewed and called it ‘capricious’ and ‘arbitrary.’ The court also added that federal agencies must treat like cases alike. Judge Neomi Rao stated in her judgment,
“The Securities and Exchange Commission recently approved the trading of two bitcoin futures funds on national exchanges but denied approval of Grayscale’s bitcoin fund.”
How Will The SEC Proceed?
It is unclear how the Securities and Exchange Commission will proceed with Grayscale’s application in the next round. The agency can still deny the applications, citing other reasons apart from what the court disagreed with. However, Grayscale could challenge that in court again. Grayscale had filed to convert its closed-end fund into an ETF in October 2021. The Grayscale Bitcoin Trust is the largest cryptocurrency fund in the world and has been trading at a discount on its Bitcoin holdings since February 2021. The discount was as high as 50% at one point but has since dropped to 17%.
Grayscale has long argued that converting the fund into an ETF would eliminate the discount and significantly bridge the gap between the price and the underlying asset (Bitcoin). ETF’s underlying structure allows for a creation-redemption model, meaning new ETF shares can be created to meet demand or redeemed to reduce supply.
Several other asset managers, such as Fidelity, Invesco, and BlackRock, have filings pending with the SEC. The SEC has to decide on these applications by next year at the latest.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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