The U.S. Securities and Exchange Commission (SEC) has made a significant decision by choosing not to pursue an appeal against a recent court ruling. This ruling found their rejection of an application from Grayscale Investments to establish a spot bitcoin exchange-traded fund (ETF) to be incorrect.
The District of Columbia Court of Appeals in Washington in August ruled that the SEC was wrong to reject Grayscale’s proposed bitcoin ETF. The SEC’s decision not to appeal likely paves the way for the agency to review Grayscale’s application.
A spot bitcoin ETF would give investors exposure to the world’s largest cryptocurrency by market capitalization without having to own it. The SEC has denied all spot bitcoin ETF applications, including Grayscale’s, on the grounds applicants have not shown they can protect investors from market manipulation.
An arbitrary denial
Grayscale sued the SEC, arguing that because the agency previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs the same setup should be satisfactory for Grayscale’s spot ETF, since both spot and futures funds rely on bitcoin’s price.
The appeals court ruled that the SEC arbitrarily denied Grayscale’s application because it never explained why the two arrangements were materially different. The appeals court is expected to issue a mandate specifying how its decision should be executed, which will likely include instructing the SEC to revisit Grayscale’s application.
Pending ETF applications
Several other asset managers, including BlackRock, Fidelity and Invesco, have similar filings pending with the SEC for a spot bitcoin ETF. The SEC is due to decide on those applications by next year at the latest.
This development marks a significant milestone in the cryptocurrency industry as it could potentially pave the way for more widespread adoption of Bitcoin and other cryptocurrencies. It also sets a precedent for future cases involving cryptocurrency ETFs and could influence how regulatory bodies approach this new asset class in the future.
