Chances For a First US Bitcoin ETF Increase as SEC Drops Grayscale Appeal

After facing a setback in August from the D.C. Circuit Court of Appeals, the Securities and Exchange Commission (SEC) has chosen not to challenge the court’s decision regarding Grayscale’s application. This move makes it increasingly likely for Grayscale Bitcoin Trust (GBTC) to transform into a sought-after exchange-traded fund (ETF).

The court had previously found fault with the SEC’s refusal of Grayscale’s appeal to convert its bitcoin trust. The court labeled the SEC’s decision as “arbitrary and capricious” and emphasized the need for federal agencies to handle similar cases in the same manner. In the words of Circuit Judge Neomi Rao, “The Securities and Exchange Commission recently approved the trading of two bitcoin futures funds on national exchanges but denied approval of Grayscale’s bitcoin fund.”

When the public caught wind of the SEC’s decision not to appeal, the reaction was immediate. Bitcoin’s value surged past the $27,000 mark according to CoinMarketCap data.

The SEC had the option to appeal the court’s decision until midnight Friday. However, as sources reported and Reuters confirmed, the regulator chose not to proceed with any appeal.

While the SEC’s next move regarding Grayscale’s application remains uncertain, it is clear that they retain the power to reject the application. However, they would need to present reasons different from the ones the court previously invalidated. If such a situation arises, Grayscale can opt to contest the decision in court.

Dating back to October 2021, Grayscale expressed its desire to transition its closed-end fund into an ETF. Recognized as the world’s largest cryptocurrency fund, GBTC has experienced a reduction in its bitcoin holdings’ value since February 2021. This drop was noticeable, with the discount even touching 50% at times. However, it has since stabilized, fluctuating around the 17% mark.

Grayscale remains firm in its stance that GBTC’s conversion into an ETF would bridge the gap between the fund’s price and its underlying bitcoin. Such a change would introduce a creation-redemption model, enabling the addition or withdrawal of ETF shares based on demand.