A recent court decision has ordered the Securities and Exchange Commission (SEC) to reevaluate its rejection of Grayscale’s application to convert its Bitcoin Trust (GBTC) into a spot bitcoin exchange-traded fund (ETF).
The District of Columbia Court of Appeals ruled in August that the SEC unjustifiably denied Grayscale’s ETF application. The SEC will not appeal the decision, meaning it must now reconsider the proposal. Because of that, the ruling was solidified by the count on the 23rd of October.
This is a pivotal development for the bitcoin ETF approval process. The SEC has repeatedly rejected spot bitcoin ETFs over concerns about investor protection and market manipulation. But the court found its rationale for denying Grayscale insufficiently explained compared to futures-based bitcoin ETFs it already approved.
Essentially, the SEC must properly justify treating similar products differently or approve Grayscale’s spot ETF. Its hands are tied – appealing further seems futile, while rejecting the ETF again without new arguments would appear arbitrary. The agency is increasingly getting under pressure to explain continued resistance even with its discretion curtailed by the ruling.
Grayscale will resubmit its ETF application soon. The SEC could find new grounds for rejection, but it will likely be an uphill battle. Other firms like BlackRock and Fidelity also have spot bitcoin ETF proposals pending that are more likely to be approved thanks to this precedent.
For now, GBTC’s long-standing discount has narrowed on optimism the trust will finally convert to an ETF. The SEC’s reconsideration marks a potential regulatory turning point that could bring billions in institutional investment to bitcoin markets.
Ultimately, this decision pushes the SEC into an ETF approval corner. It establishes a higher bar for explaining any rejection given comparable products that gained approval. After years of denying spot bitcoin ETFs, the SEC now faces heavy pressure to either reverse course or craft an airtight new case against an idea whose time may have finally arrived.
Approval of spot Bitcoin ETF can be in a way viewed as a win for the SEC too since it expands its oversight authority over crypto markets.