A Step Closer to Spot Bitcoin ETF: Grayscale Scores Big Win in SEC Lawsuit

The US Court of Appeals for the DC Circuit overturned a Securities and Exchange Commission (SEC) ruling, giving crypto asset manager Grayscale Investments LLC a long-awaited victory in its fight over the conversion of its Bitcoin Trust into a spot Bitcoin exchange-traded fund (ETF).

“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” judge Neomi Rao said in the opinion.

Grayscale sued the SEC in June 2022 after the agency rejected its application to convert its publicly traded spot Bitcoin trust into an ETF.

The appellate court reversed a lower court decision that ruled the SEC was correct to deny Grayscale’s application for a Bitcoin ETF. Grayscale is a company that has long managed publicly traded trusts for Bitcoin, Ether, and other cryptocurrencies.

Grayscale’s assertion that an ETF based on the spot price of Bitcoin was sufficiently like a Bitcoin ETF based on futures contracts was the crux of the issue. The latter have long been permitted by the SEC since they are designed for institutional investors rather than retail traders.

The judge specifically detailed how “Grayscale presented uncontested evidence that there is a 99.9% correlation between bitcoin’s spot market and CME futures contract prices.”

“This is a monumental step forward for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protection for the ETF wrapper,” Grayscale CEO Michael Sonnenshein said.

This judgment does not guarantee that Grayscale Bitcoin Trust (GBTC) will be converted to an ETF (the SEC may find other grounds to deny the product), but it does increase the likelihood of a spot approval.