The first U.S. bitcoin ETF is much closer to becoming a reality today after a federal appeals court ruled that the SEC must reconsider cryptocurrency asset manager Grayscale Investments LLC’s application to convert its bitcoin trust into an ETF.
The ruling sent shockwaves through the cryptocurrency world, with bitcoin’s price increasing on Tuesday 7% to nearly $28,000. Bitcoin is up 65% in 2023, but remains far off its late-2021 high above $69,000. Coinbase, the largest publicly traded U.S. crypto exchange, jumped 15% today to $85.13 per share, and Grayscale’s Bitcoin trust—known by its ticker GBTC—notched a 17% rally, gaining $2.98 to close at $20.56.
“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.”
Circuit Judge Neomi Rao
Today’s decision by the U.S. Court of Appeals for the D.C. Circuit orders the SEC to vacate its rejection of Grayscale’s bid to convert the Grayscale Bitcoin Trust into an exchange-traded fund. The ruling was unanimous in a panel of three judges.
Circuit Judge Neomi Rao wrote on behalf of the court, stating that the SEC has approved bitcoin futures ETFs, and Grayscale advanced substantial evidence that its product was similar to bitcoin futures ETFs approved by the SEC. “The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” Judge Rao wrote. “We therefore grant Grayscale’s petition and vacate the order.”
Back in June 2022, the SEC had denied Grayscale’s application to convert its bitcoin trust into an ETF on the basis that spot markets for bitcoin are unregulated and subject to market manipulation.
On X (formerly Twitter), Grayscale called today’s ruling “a monumental step forward for all who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper.”
Calling it a “historic milestone for American investors,” Grayscale CEO Michael Sonnenshein added in a statement, “It’s incredibly exciting that we are one step closer to making a US spot Bitcoin ETF a reality.”
Grayscale has argued that converting to an ETF would help it unlock about $5.7 billion in value from the $16.2 billion trust by making it easier to create and redeem shares.
While the ruling does not mean the Grayscale bitcoin ETF is automatically approved, it does provide a boost for what has been a decade-long industry effort to advance a bitcoin ETF product, and may well pave the way for broad investor adoption of ETFs backed by bitcoin rather than futures.
The SEC for years has repeatedly rejected bitcoin ETFs from a variety of asset managers, including Fidelity Investments, Skybridge Capital, Morgan Stanley, and many others. As The Wall Street Journal reports, BlackRock applied for a spot bitcoin ETF in June, kicking off a new wave of applications and fueling speculation that the SEC might need to reconsider its stance. Fidelity Investments and Invesco are among other asset managers that have applied.
A bitcoin ETF would be a retail-accessible trading vehicle offering both individuals and institutions (including retirement plans) exposure to the bitcoin market without having to hold bitcoin itself. It could well open the door to ETFs make meaningful inroads into retirement plans long dominated by mutual funds.
SEE ALSO:
• Gensler Signals Different Road is Quickest Way to a Bitcoin ETF
• ForUsAll to Offer 401(k) Crypto Investments Via CoinDesk Indices
• SkyBridge’s Anthony Scaramucci: ‘Bitcoin is a Retirement Asset’