Court Ruling Forces SEC to Reconsider Grayscale’s Bitcoin ETF Application

Grayscale Investments, a prominent crypto asset manager, has won a court ruling that requires the Securities and Exchange Commission (SEC) to reconsider its application for the first bitcoin exchange-traded fund (ETF).

This ruling is seen as a setback for SEC Chair Gary Gensler’s efforts to regulate the crypto market, The Wall Street Journal (WSJ) reported Tuesday (Aug. 29).

The court ruled that the SEC’s denial of Grayscale’s proposal was “arbitrary and capricious” due to the commission’s failure to provide an explanation for its differing treatment of similar products, according to the report. While the SEC has previously approved bitcoin futures ETFs, it rejected Grayscale’s application, citing concerns about the unregulated nature and potential market manipulation in bitcoin spot markets.

This ruling has sparked optimism among traders, who believe it could pave the way for broader investor adoption of bitcoin-backed ETFs rather than futures, the report said. Following the news, bitcoin-related assets experienced a surge, with Coinbase Global, the largest publicly traded crypto exchange, witnessing a 14% rise, and bitcoin futures increasing by 6%.

Even before today’s ruling, the outcome of this lawsuit has been a source of optimism for the crypto market throughout the summer, PYMNTS reported Aug. 18.

Grayscale CEO Michael Sonnenshein said in a Tuesday press release that the ruling is an important milestone for investors, the bitcoin ecosystem and those who have been “advocating for bitcoin exposure through the added protections of the ETF wrapper.”

“Grayscale has adhered to U.S. financial rules and regulations in building our product suite since our founding in 2013, underpinned by one fundamental belief: investors deserve transparent, regulated access to crypto,” Sonnenshein said in the release. “It’s incredibly exciting that we are one step closer to making a U.S. spot bitcoin ETF a reality.”

The SEC has been cautious in approving bitcoin ETFs, only permitting futures-based ETFs that hold regulated contracts from the Commodity Futures Trading Commission (CFTC), according to the WSJ report.

However, with Grayscale’s court win and the growing interest in bitcoin ETFs, speculation is rife that the SEC may reconsider its stance. Asset management giants like BlackRock have already applied for a spot bitcoin ETF, while others such as Fidelity and Invesco have expressed interest.

SEC Chair Gensler has been actively working towards bringing cryptocurrency markets into compliance with federal regulations, the report said. He has said that most cryptocurrencies in circulation are unregistered securities and has bolstered the SEC’s team of crypto enforcement attorneys.

Nonetheless, Gensler’s approach has faced obstacles, including a recent court ruling against the SEC in its battle with Ripple Labs.