Summary of Contents

  • SEC Not Planning To Dispute
  • SEC's Arbitrary and Impermissible Decision 
  • What Steps Will The SEC Take? 
 The US Securities and Exchange Commission's decision not to appeal the judgement in the Grayscale case increases the chances that the Grayscale Bitcoin Trust will become an ETF.

After hearing the news, the price of Bitcoin immediately rose.

SEC Does Not Intend To Appeal 

The US Securities and Exchange agency has chosen not to appeal a recent court ruling that determined it was unlawful for the agency to deny Grayscale Investments' attempt to form a new bitcoin exchange-traded fund (ETF).

 The SEC received harsh criticism from the court in its decision for preventing Grayscale from converting its bitcoin trust into an exchange-traded fund that is beneficial to investors. The crypto industry, which has been working to promote ETFs for a while, has been keenly following the lawsuit between the SEC and Grayscale. 

By Friday at midnight, the Securities and Exchange Commission has to determine whether or not to appeal the ruling. The SEC did not, however, file an appeal and allowed that time to pass.

Investors may gain exposure to bitcoin, the biggest cryptocurrency in the world, through a spot bitcoin ETF without actually holding the asset. The SEC has thus far rejected all applications for spot bitcoin ETFs, including Grayscale's. According to the Securities and Exchange Commission, the applicants were turned down because they had not demonstrated that they could safeguard investors from market manipulation. 

Arbitrary and capricious SEC Decision 

Grayscale filed a lawsuit against the SEC after it rejected its request, claiming that the watchdog has previously approved a number of surveillance agreements meant to stop fraud in bitcoin futures-based ETFs. Since both spot and futures funds depend on the price of bitcoin, Grayscale contended that the same design should be acceptable for Grayscale's spot bitcoin ETF. 

The Security and Exchange Commission's refusal of the application to convert the Grayscale Bitcoin Trust (GBTC) into an ETF was invalid, according to the DC Circuit Court of Appeals, which appeared to side with Grayscale. The ruling was deemed "capricious" and "arbitrary" by the court, who also declared that it must be reconsidered. The court also ruled that similar instances must be handled similarly by federal authorities.

What Steps Will The SEC Take? 


How Grayscale's application will be handled by the Securities and Exchange Commission in the upcoming round is still up in the air. The agency may still reject the applications for reasons other than those with which the court disagreed. Grayscale could, however, refute that in court once more.
 
In October 2021, Grayscale submitted paperwork to convert its closed-end fund into an ETF. Since February 2021, the Grayscale Bitcoin Trust, the biggest cryptocurrency fund in the world, has been trading at a loss on its Bitcoin holdings. At one point, the discount was as much as 50%, but it is now only 17%. 

Grayscale has argued for a very long time that converting the fund into an ETF will eliminate the discount and significantly close the gap between the price and the underlying asset (Bitcoin). The basic structure of ETFs supports a creation-redemption paradigm, which enables the production of new ETF shares to meet demand or the redemption of existing shares to reduce supply.

Other asset managers with pending SEC filings include Fidelity, Invesco, and BlackRock. The SEC must make a decision regarding these applications no later than next year.

DISCLAIMER: We don't provide any investment advice.