Bitcoin at $31K as court formalizes Grayscale win over SEC

Grayscale remains in talks with the SEC and intends “to move as expeditiously as possible” in its quest to convert GBTC to an ETF


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The DC Circuit Court of Appeals has formalized Grayscale Investments’ court win over the US Securities and Exchange Commission — sending the onus back to the regulator.

A three-judge panel ruled unanimously in August that the SEC rejecting Grayscale’s proposal to convert its bitcoin trust (GBTC) to an ETF — but allowing bitcoin futures funds to launch — was “arbitrary and capricious.”

The court said at the time that the commission’s order denying the GBTC conversion would be “vacated.” The final mandate affirming its decision — filed Monday — comes 10 days after the SEC’s 45-day window to appeal the court loss to Grayscale expired

“The Grayscale team looks forward to continuing to work constructively with the SEC to convert GBTC to an ETF,” a Grayscale spokesperson told Blockworks Monday. “GBTC is operationally ready, and we intend to move as expeditiously as possible on behalf of our investors.”

As some expected, the mandate did not offer clarity on next steps. 

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Bloomberg Intelligence analyst James Seyffart noted in an X post last week: “It’s not gonna be some massive market moving document dictating what the SEC has to do. It’s procedural.”

Read more: What the judges said: unpacking the Grayscale court ruling

Still, Nate Geraci, president of The ETF Store, said in a Sunday X post that the formalized ruling would be another step towards spot bitcoin ETF approval. The first proposal for such a product came in 2013. 

“Say what you will about Grayscale, but their legal efforts have paved way for every issuer,” Geraci wrote.

Bitcoin ETF approval incoming?

Optimism from a number of industry executives and segment observers around the potential approval of a spot bitcoin ETF in the coming months has grown. 

Bitcoin’s (BTC) price eclipsed $31,000 Monday — up about 10% in the last week — due in part to such a change in sentiment, according to analysts. 

Read more: Another would-be bitcoin ETF player: ‘It’s going to get approved’

While the court mandate Monday finalized Grayscale’s court win, some have pointed out the regulator could still deny GBTC’s conversion on different grounds. 

The SEC could still ask the US Supreme Court to review the Court of Appeals ruling, Bloomberg Intelligence senior litigation analyst Elliott Stein said in an interview last week. But that route is unlikely, he added. 

“So it’s really back in the SEC’s court, so to speak,” Stein said. “And it’s going to be a discussion now, I think, between the SEC and Grayscale as to what the process is next.”

Grayscale filed on Oct. 19 to register shares of GBTC under the Securities Act of 1933 via an S-3 form — marking another step in the process to ultimately turn the trust into an ETF.

An SEC spokesperson has declined to comment on this issue. 

SEC Commissioner Hester Peirce said in an interview with CNBC Monday she has believed the regulator should approve a spot bitcoin ETF for five years. 

“The logic for why we haven’t [approved one] has always mystified me,” she added. “The court case, obviously, is an important factor in the landscape, but I can’t guess as to my colleagues’ approach to this topic.” 

The SEC allowed bitcoin futures ETFs to start trading in October 2021. DC Circuit Judges Neomi Rao, Sri Srinivasan, and Harry Edwards said in its August court ruling that the SEC, in denying the GBTC conversion, did not properly “explain its different treatment of similar products.” 

Grayscale had asserted that bitcoin futures prices on the Chicago Mercantile Exchange (CME) are 99.9% correlated with spot market prices.

“The commission’s unexplained discounting of the obvious financial and mathematical relationship between the spot and futures markets falls short of the standard for reasoned decisionmaking,” the judges said in the initial decision.

Industry watchers previously noted that the SEC would not be forced to immediately approve GBTC’s conversion to an ETF. But many agreed the judges’ decision was a win for the industry, particularly for those awaiting the approval of spot bitcoin ETFs. 

The SEC is set to decide on a spot bitcoin ETF proposed by Ark Invest and 21Shares on Jan. 10. It could also look to rule on other similar planned products — by BlackRock, Fidelity and others — at that time in an effort not to give any one issuer a head-start, some industry watchers have speculated.

“I expect the SEC to grant approval to spot bitcoin applications, which may include Grayscale, possibly as early as the end of this year,” Haynes Boone law partner Arie Heijkoop told Blockworks last week. “But more likely in early- to mid-2024.”

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