U.S. Court Weighs in Favor of Grayscale, Calls for SEC Review of ETF Transformation

Grayscale Investments could see a revival of its proposal to transform the Grayscale Bitcoin Trust into an exchange-traded fund (ETF). This comes after a federal court mandated the U.S. Securities and Exchange Commission (SEC) to revisit its initial decision of declining Grayscale’s request.

Such a reconsideration might pave the way for the debut of a U.S. spot bitcoin ETF. Proponents of the idea claim that a spot bitcoin ETF could make bitcoin investments accessible to a broader audience, eliminating complexities like direct bitcoin buying or custodian failures. However, the SEC has yet to approve any of these ETF applications.

In her remarks on the subject, Circuit Judge Neomi Rao emphasized the need for consistency in federal decisions. She highlighted that while the SEC approved two bitcoin futures funds for trading, Grayscale’s almost identical proposal faced rejection. She noted, “Grayscale maintains its proposed bitcoin exchange-traded product is materially similar to the bitcoin futures exchange-traded products and should have been approved to trade on NYSE Arca. We agree.”

It appears that the primary contention isn’t the rejection itself, but the SEC’s lack of clarity on its decision-making process. The judgment specified that Grayscale’s proposal closely aligns with the previously approved Teucrium and Valkyrie bitcoin futures products, both in terms of surveillance agreements with the CME and the correlation of underlying assets.

The court’s directive doesn’t guarantee SEC’s approval for Grayscale’s ETF proposal but calls for a more detailed examination.

The judgment highlighted, “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP.” Grayscale’s legal team is currently evaluating the verdict and contemplating the subsequent actions with the SEC. Grayscale CEO Michael Sonnenshein validated these sentiments in a social media post.

In 2021, Grayscale, recognized for managing the largest cryptocurrency fund globally, initiated its conversion request for the GBTC closed-end fund into an ETF. The SEC’s refusal revolved around concerns like potential market manipulation. Grayscale promptly challenged the SEC’s decision by petitioning the U.S. Court of Appeals for the District of Columbia Circuit.

Following Grayscale’s judicial victory, GBTC shares witnessed heightened trading activity. Daily trading volumes surged, marking the highest numbers since June 2022. The Digital Asset Research’s CEO anticipates potential growth with a successful conversion.