In a decisive development, the U.S. Securities and Exchange Commission (SEC) has decided not to appeal a recent court ruling that found it was unjust to reject an application from Grayscale Investments to create a spot bitcoin exchange-traded fund (ETF).
The District of Columbia Court of Appeals in Washington had ruled in August that the SEC’s rejection of Grayscale’s proposed Bitcoin ETF was erroneous. The SEC’s decision not to contest the ruling could potentially expedite the review of Grayscale’s application.
A spot Bitcoin ETF would offer investors exposure to the world’s largest cryptocurrency by market capitalization without the need to directly own it. However, the SEC has consistently denied all spot Bitcoin ETF applications, including Grayscale’s, on the grounds that the applicants lacked sufficient measures to safeguard investors from market manipulation.
In response, Grayscale contended that the SEC’s approval of certain surveillance agreements to thwart fraud in Bitcoin futures-based ETFs should be sufficient for their spot ETF.
Grayscale’s legal battle hinged on the SEC’s inconsistent treatment of spot and futures Bitcoin ETFs, although both pose similar risks and are priced based on the same underlying spot markets. The argument was built on the premise that both spot and futures funds depend on Bitcoin’s price. The appeals court concurred, stating that the SEC failed to explain the material difference between the two arrangements, thus arbitrarily rejecting Grayscale’s application.
The SEC’s declination to appeal the court’s ruling now paves the way for other asset managers, including BlackRock, Fidelity, and Invesco, who have similar filings pending with the SEC for a spot Bitcoin ETF. The SEC is expected to decide on these applications by next year at the latest.
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