August 29, 2023 at 15:46 GMTModified date: August 29, 2023 at 15:46 GMT
August 29, 2023 at 15:46 GMT

Grayscale wins SEC battle for first Bitcoin ETF

Grayscale has gained approval to launch the first spot Bitcoin ETF from a federal court, which overturned the SEC’s decision to block the application last year.

Grayscale wins SEC battle for first Bitcoin ETF

Grayscale Investments has gained approval from a federal court to launch the first Bitcoin exchange-traded fund (ETF) in the US. 

The ruling comes after a legal battle with the US Securities and Exchange Commission (SEC) over Grayscale’s application to convert the Grayscale Bitcoin Trust into an ETF.

On 29 August, the District of Columbia Court of Appeals ruled in favor of Grayscale, overturning the SEC’s decision that initially denied the application for the ETF. This now paves the way for the first spot $BTC ETF.

This move could have wide-ranging implications, potentially opening up the doors for the crypto industry to attract significant investments from everyday individuals. It could also result in the filing of more Bitcoin ETFs from other firms. 

The SEC now has a 45-day window to appeal the ruling. If an appeal is filed, the case could either be brought before the US Supreme Court or undergo a panel review.

SEC’s initial denial

Last year, the SEC denied Grayscale’s application to convert the asset manager’s spot Grayscale Bitcoin Trust into an ETF. 

However, the commission did approve the application for a Bitcoin futures ETF, a fund that tracks agreements to buy or sell the cryptocurrency at a prearranged price. 

Other firms also applied for spot Bitcoin ETFs in 2022, which were eventually denied by the SEC on investor protection grounds. The asset managers applying for Bitcoin ETFs included Fidelity, Cathie Wood’s ARK, and Invesco. 

However, Grayscale was alone in filing a lawsuit against the SEC to overturn the decision to deny its application. As the commission is a regulator, the case was fast-tracked to the appeals court, where it has now been overturned. 

What next for the Grayscale ETF? 

Moving forwards, both Grayscale and the SEC have the option to appeal this recent court ruling within a 45-day timeframe. Should an appeal take place, the case could proceed to the US Supreme Court or undergo an en banc panel review. 

It remains uncertain whether the SEC will respond and appeal.

In the event that the SEC chooses not to appeal, the court would outline the specifics of implementing its decision. This might involve instructing the SEC to grant approval for the ETF application or revisiting Grayscale’s proposal. In the latter case, the SEC could still reject the application based on alternative grounds. 

Implications for other ETF applications

This year, various other firms have submitted spot Bitcoin ETF applications for potential listing on Nasdaq and CBOE Global Markets. Notable applicants include BlackRock, Fidelity, WisdomTree, VanEck, Bitwise, and Invesco. 

Many of these companies have suggested collaborating with Coinbase, the largest US-based cryptocurrency exchange, to monitor trading activities in the underlying Bitcoin market. The SEC has formally acknowledged these applications. But it has a decision timeline of up to 240 days.

It is also unclear whether the SEC’s recent lawsuit against Coinbase for acting as an unregistered exchange could interfere with the applications. 

While the consequences of a Grayscale victory for these applications remain uncertain, it could influence the SEC’s decision regarding these proposals. The verdict could serve as a precedent or a reference point for other ETF applications in the crypto space.

Bitcoin rallies after the Grayscale ruling

The price of BTC has surged off the back of this announcement. As of 29 August, Bitcoin has climbed by 5% in the past 24 hours. 

It marks a significant upturn in its price movements, following the decline over the past two weeks. 

The largest cryptocurrency experienced a two-month low on 18 August. BTC dropped by 7.2% to $26,172, its biggest one-day fall since the FTX collapse in November 2022.

At the time of writing, Bitcoin was trading at $27,417 and up 5.6% in the previous seven days.