Grayscale Wins Case Against SEC

The ruling means the SEC will have to reconsider Grayscale's application to convert GBTC into a spot Bitcoin ETF.

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Yesterday, Grayscale won its court battle with the SEC, potentially bringing a spot Bitcoin ETF a step closer.

Last year, Grayscale applied to the SEC to convert its closed-ended Bitcoin Trust (GBTC) into a spot ETF. The regulator denied the application, claiming the vehicle would be vulnerable to market manipulation. Grayscale had proposed using manipulation safeguards already approved for bitcoin futures ETFs, but the SEC stated that this did not meet its bar. Grayscale immediately took the regulator to court, arguing that their application had been wrongly rejected.


Because the case was against a regulator, it went straight to the Court of Appeals. On Tuesday, Circuit Judge Neomi Rao ordered that Grayscale's petition for review be granted, and for the SEC's order to deny the GBTC listing application to be "vacated".

The judge had previously commented that the SEC had not offered any explanation about why Grayscale's proposed measures were inadequate. Documents show the parties discussing with the judge how futures prices track spot prices almost exactly. A spot ETF would therefore be similar to a futures ETF in this regard. The ruling stated: "First, the underlying assets – bitcoin and bitcoin futures – are closely correlated. And second, the surveillance sharing agreements with the CME are identical and should have the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin and bitcoin futures."

What Next?

While this is a big success for Grayscale, it does not mean that a spot Bitcoin ETF will automatically be approved. Instead, the SEC has been required to reconsider the application. It is quite possible they will find other reasons to deny it.

Nonetheless, the markets accepted the news with enthusiasm. Having consolidated around the $26,000 level for 10 days following the drop from $29,000 last week, BTC spiked $2,000, briefly topping $28,000, before closing the day at $27,700.

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