The Grayscale Bitcoin Trust has earned a large legal victory against the SEC. On August 29, 2023, the United States Court of Appeals for the District of Columbia Circuit vacated an order from the Securities and Exchange Commission (SEC). This granted Grayscale Investments LLC a year long victory in its lawsuit over the conversion of its Bitcoin Trust into a spot Bitcoin exchange-traded fund (ETF).
The SEC previously rejected Grayscale’s application to convert the Grayscale Bitcoin Trust to a spot Bitcoin ETF on June 29, 2022. Grayscale argued that the SEC acted “arbitrarily and capriciously” when rejecting spot Bitcoin ETF applications. Especially considering it has previously approved Bitcoin futures ETFs.
Grayscale Wins Appeal
The SEC originally rejected Grayscale’s GBTC application on grounds that the products were not “designed to prevent fraudulent and manipulative acts and practices.” Grayscale sued the SEC following their decision, claiming that the SEC violated the Securities Exchange Act with “unfair discrimination” against spot Bitcoin ETF issuers. U.S. Court of Appeals Circuit Judge Neomi Rao ordered Grayscale’s petition for review be granted and the SEC’s order to deny the GBTC listing application be vacated.
The SEC now has to review Grayscale’s filing, and unless they can find more firm ground to stand on to reject them again, it seems likely that Grayscale may get its Bitcoin ETF. Previously, Judge Rao said that the SEC did not “offer any explanation” as to why Grayscale was in the wrong. Following the decision, the SEC decided to delay their decisions on all the applicants for spot Bitcoin ETFs.
SEC Delays ETF Decisions
According to SEC filings dated Aug. 31, the commission has designated a longer period in which it may review spot BTC ETF applications from WisdomTree, BlackRock, VanEck, Invesco Galaxy, Bitwise and Valkyrie, as well as the Wise Origin Bitcoin Trust proposed by Fidelity. This means the SEC will have another 45 days following the filing to consider the proposed rule changes allowing listing of the spot ETFs. This gives the regulator until mid-October to approve, deny, or delay their decisions regarding all the ETF filings.
The delays followed speculation that the SEC could approve a spot Bitcoin ETF in the US for the first time after they lost the court case brought by Grayscale, which was just two days before this SEC filing. Analysts believe that the SEC is delaying their decisions in order to approve more than one ETF, to prevent there from being one with a first-to-market advantage over the others.
ETF Floodgates?
Assuming the analysts are correct and the reason that the SEC has delayed their decisions until mid-October is because they’re going to approve multiple at once, it will likely start a trend of other digital asset ETFs being applied for.
Assets like Ethereum (ETH), Polygon (MATIC), and Solana (SOL) are all likely to have ETF filings if Bitcoin finally gets its spot ETFs. Other top assets like Cardano (ADA), Avalanche (AVAX), and Polkadot (DOT), are all candidates for spot ETFs as well.
Closing Thoughts
Digital asset ETFs will be great for many reasons, not the least of which is the air of legitimization they provide to said digital assets. While futures ETFs have previously been approved, spot ETFs have been another story, and they’re key to helping push crypto adoption, as both an investment and disruptive technology, forward.
At what rate it moves forward is unknown, but it’ll certainly be a step in the right direction if and when the first Bitcoin ETF is approved.
