To appeal or not to appeal the Grayscale ruling — that’s the SEC’s question

A number of industry watchers expect the SEC not to challenge its court loss, but the agency could look to “play obstructionist” in other ways, analysts say


K.unshu/Shutterstock, modified by Blockworks


The deadline for the Securities and Exchange Commission to appeal Grayscale Investments’ court win is a week away, and the regulator’s decision could foreshadow the fate of spot bitcoin ETFs — or at least the timeline for potential launches.

While segment observers have said an SEC appeal could be bearish for bitcoin ETF approval timelines, many expect the SEC not to appeal. And regardless of the commission’s choice, a number of industry watchers agree bitcoin ETFs will ultimately trade. 

The SEC’s options

DC Circuit Court of Appeals judges ruled in August that the SEC denying the proposed conversion of the Grayscale Bitcoin Trust (GBTC) to an ETF, but approving bitcoin futures ETFs, was “arbitrary and capricious.”

Read more: What Grayscale’s win against the SEC actually means 

An SEC spokesperson at the time told Blockworks the agency was “reviewing the court’s decision to determine next steps.” Grayscale Investments said in a statement after the decision that it would be “working closely with the SEC on next steps to bring GBTC to NYSE Arca as a spot bitcoin ETF.”

The SEC’s deadline to challenge the decision is Oct. 13. It can seek an appeal to the US Supreme Court — if a certiorari petition is granted — or can request an “en banc” panel of the Court of Appeals to revisit the ruling. 

Pantera Capital executives said in a September letter to investors last month that the Supreme Court route is unlikely, noting “this case isn’t that important as a matter of law.”

If the SEC chooses not to appeal, the court is expected to issue an order detailing next steps. This could include “instructing the SEC to approve the application, or to revisit Grayscale’s application, in which case the SEC could still reject the proposal on other grounds,” according to a blog post by law firm Winston & Strawn.

Compass Point Research & Trading analysts Chase White and Joe Flynn said in a Friday research note that they believe the odds of being granted an en banc hearing or a writ of certiorari are “virtually zero.” 

“And we think Gensler knows this, so we would not be surprised if the agency does not appeal,” they added. 

But even if the SEC chooses not to appeal, it could still look “to play obstructionist,” White and Flynn said. 

“The SEC can still decline the conversion for different reasons, making the need for an appeal less compelling than it was in the Ripple case, where the judge’s decision was definitive and held significant implications for the legal classification of digital assets,” Fineqia International analyst Matteo Greco told Blockworks. 

An SEC spokesperson declined to comment Friday.

Launches a matter of when, not if?

Hashdex Chief Investment Officer Sam Kerbage said during a webinar last month that the SEC requesting Grayscale to submit a new proposal and rejecting it again for a different reason is “the most likely path.” 

Resubmitting a proposal would begin a 240-day review period, Kerbage noted.

The 240-day window for the SEC to rule on a spot bitcoin ETF proposed by Ark Invest and 21Shares expires on Jan. 10. The ultimate deadline for it to decide on other proposals, such as those by BlackRock and Fidelity, is roughly two months later. 

“There’s a prevailing belief that if approval is to happen for this round of spot BTC ETF applications, it would likely occur on or before January 10, given the perceived inconsistency of denying in January and approving in March,” Alex Thorn, Galaxy Digital’s head of research, said in a statement. 

That point in January is indeed poised for “a comprehensive approval or an irrevocable rejection,” Greco said. 

“A rejection would undoubtedly have short-term negative repercussions, particularly as traders could leverage the ensuing market uncertainty and volatility to engage in speculative long and short positions,” Greco explained. “Conversely, an approval would generate a positive market response, signaling the potential influx of substantial capital from traditional finance.” 

No matter what happens in January, many agree spot bitcoin ETFs will trade in the US eventually. 

Bloomberg Intelligence analysts said after the Grayscale decision they believed there was a 75% likelihood the SEC would approve a spot bitcoin ETF by the end of 2023. But those odds of approval stand at 95% by the end of 2024, they noted. 

“Although our base case remains that the SEC will begin approving the ETFs by early 2024, we admit it’s only by slim margin given Gensler’s persistent anti-crypto stance,” White and Flynn wrote in their Friday note. “Still, we think that spot BTC ETF approvals are almost a certainty within the next two years given our view that the SEC has virtually no chance of winning in court when all is said and done.”

Despite uncertainty around the SEC’s next move, LMAX Group market strategist 

Joel Kruger argued that crypto has momentum on its side.

“We think the bigger takeaway here is a narrative that continues to push in crypto’s favor,” Kruger told Blockworks. “In recent months, there has been a growing acceptance and understanding of the value proposition of crypto assets across the general public and lawmakers.”

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