On Monday, the D.C. Circuit Court of Appeals issued a final ruling in the lawsuit between the U.S. Securities and Exchange Commission (SEC) and Grayscale, where it ordered the financial regulator to re-consider the crypto asset manager’s bid to create a spot market exchange-traded fund (ETF) based on Bitcoin (BTC).
DC Appeals Court Orders SEC To Reconsider Grayscale’s Spot Bitcoin ETF Bid
The formal closure solidified the appeals court’s initial ruling in late August when Judge Neomi Rao called the SEC’s decision to reject Grayscale’s attempt to convert its $17 billion Grayscale Bitcoin Trust (GBTC) into a spot ETF “arbitrary and capricious”. At the time, the securities watchdog argued that a Bitcoin-focused ETF lacked adequate oversight to detect fraud, despite having approved a Bitcoin ETF for the futures market two years prior.
However, the ruling puts the ball back in the SEC’s court as the Commission could choose to either approve Grasyscale’s application or reject it on other grounds. Initially, the SEC was preparing to appeal the ruling but decided against it earlier this month. A person familiar with the matter said the agency has no plans to make any further appeals in the case.
Bitcoin ETF Would Lead To Broader Mainstream Crypto Adoption
The appellate panel’s decision was cheered on by crypto advocates, who believe that a Bitcoin spot ETF would open the door for the crypto sector to tap into the traditional financial markets where the majority of investors and money are. Experts assert that broader access would lead to mainstream acceptance of crypto, which is oftentimes viewed by critics as a speculative and lightly regulated industry.
In recent months, asset management giants from Wall Street, including BlackRock, Fidelity, and Franklin Templeton, have filed applications with the SEC for their respective spot Bitcoin ETFs. So far, none of the dozen proposals have been approved as the regulator continues to delay its decision on the investment products. The SEC has a deadline of January 2024 to make a final decision regarding the first batch of spot Bitcoin ETFs.
Reacting to the court update, a spokesperson for Grayscale said the company is looking forward to continue working “constructively” with the SEC to convert GBTC to an ETF. They added that the GBTC is “operationally ready” and the asset manager intends to move “as expeditiously as possible” on behalf of its customers.
What Is GBTC?
The Grayscale Bitcoin Trust (GBTC), introduced in September 2013, is a publicly traded Trust fund that is claimed to be modeled on popular commodity investment products like the SPDR Gold Trust. The fund operates as a closed-end unit trust and issues a fixed number of shares to investors in exchange for capital, which is used by Grayscale to purchase Bitcoin (BTC).
GBTC is estimated to hold about 3.4% of all BTC currently in circulation, and its share price is meant to reflect the value of one Bitcoin. However, net asset value (NAV) shows that GBTC shares have frequently traded at a large premium or discount over the actual value of the underlying crypto asset.
As of October 2023, Grayscale holds about $17.4 billion worth of assets under its Bitcoin Trust and 692,370,100 shares outstanding. The fund allows investors to gain exposure to BTC as a security while avoiding the challenges of buying, storing, and securing the asset.
Grayscale says that converting its trust into an ETF would make it easier for it to create and redeem shares, as GBTC’s current closed-end structure does not allow investors to redeem their shares when Bitcoin drops in price. This is one of the reasons why GBTC shares trade at a steep discount compared to the underlying BTC.
However, the discount on GBTC has narrowed significantly as the market expects the fund to soon be converted into an ETF. Last week, Grayscale filed an application for its crypto Trust to list shares on the NYSE Arca, only pending regulatory approval.
Bitcoin Surges Past $30,000 In Anticipation Of A Spot ETF Approval
For the first time since July, Bitcoin (BTC) rose to above $31,000 on Monday amid expectations that the court mandate will clear the path for Bitcoin ETFs to be launched in the US spot markets.
The leading cryptocurrency briefly surged 10% last week after a false report from crypto news outlet Cointelegraph claimed BlackRock had won the SEC approval to list its highly-anticipated Bitcoin ETF. However, the world’s largest asset manager came out and clarified that its proposal remains under review and nothing has been finalized yet.
At the time of writing, BTC is trading at $34,036 – rising over 10% from its previous day’s price.