In a landmark ruling on August 29, 2023, the United States Court of Appeals for the District of Columbia Circuit vacated an order from the Securities and Exchange Commission (SEC), granting Grayscale Investments LLC a long-awaited victory in its lawsuit over the conversion of its Bitcoin Trust into a spot Bitcoin exchange-traded fund (ETF).
The SEC rejected Grayscale’s initial application to convert the Grayscale Bitcoin Trust to a spot Bitcoin ETF on June 29, 2022. Grayscale argued that the SEC acted “arbitrarily and capriciously” in rejecting spot Bitcoin ETF applications, especially considering it had approved Bitcoin futures ETFs. Grayscale claimed that the SEC violated the Securities Exchange Act with its “unfair discrimination” against spot Bitcoin ETF issuers.
The ruling is not only a significant victory for Grayscale but also holds profound implications for the backdrop of future spot Bitcoin ETF applications. As previously reported by CryptoSlate, the court’s decision on the lawsuit could dictate the fate of the string of spot Bitcoin ETF applications filed earlier this year.
Grayscale’s argument centered around the SEC’s disparate treatment of spot and futures Bitcoin ETFs, despite both posing similar risks and being priced based on the same underlying spot markets. In contrast, the SEC contended that spot Bitcoin ETFs are more susceptible to manipulation and fraud because the underlying spot market remains unregulated. The SEC further argued that the regulated Chicago Mercantile Exchange, where Bitcoin futures ETFs trade, has sufficient safeguards against fraud and manipulation.
Responding to the court ruling, Grayscale CEO, Michael Sonnenshein, expressed gratitude to the firm’s investors for their support and encouragement via a tweet. He also indicated that Grayscale’s legal team is actively reviewing the Court’s opinion.
The court’s decision, regardless of the outcome, was crucial for all those looking to issue spot Bitcoin ETFs in the U.S. Had Grayscale lost, the firm could have called for an “en banc” hearing, where all judges of the D.C. Circuit would weigh in on the case. Alternatively, they could have appealed the decision in the Supreme Court. Now, with this ruling in Grayscale’s favor, the firm sees a significant win, and the future for spot Bitcoin ETF issuers in the U.S. may have just brightened.
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