BREAKING: Crypto Asset Manager Grayscale Wins Lawsuit Against SEC

Key Points:

• The U.S. Federal Court has ordered the SEC to review its rejection of Grayscale Investments’ bid to convert the GBTC into a listed Bitcoin ETF.
• The court deemed the SEC’s denial “arbitrary and capricious.”
• If the SEC approves Grayscale’s conversion, it could pave the way for the U.S.’s first spot in Bitcoin ETF.

In a significant win for Grayscale Bitcoin Trust (GBTC), the U.S. Federal Court has ruled in favor of the crypto asset manager, ordering the U.S. Securities and Exchange Commission (SEC) to review its rejection of Grayscale Investments’ bid to convert the GBTC into a listed Bitcoin exchange-traded fund (ETF).

The court’s decision, filed on August 29, grants Grayscale’s petition for review and vacates the SEC’s order denying the GBTC listing application.

Circuit Judge Neomi Rao, who presided over the case, deemed the SEC’s denial of Grayscale’s proposal “arbitrary and capricious” due to the agency’s failure to provide an explanation for its differential treatment of similar products.

This ruling signals a potential breakthrough for Grayscale, but it does not guarantee the immediate listing of a spot Bitcoin ETF.

Grayscale Investments, known for operating the world’s largest cryptocurrency fund, originally applied for the conversion of its GBTC closed-end fund into an ETF in October 2021. However, the SEC rejected the application, citing concerns related to market manipulation prevention and other issues.

The court’s opinion in favor of Grayscale has broader implications, as numerous firms, including industry giants like BlackRock and Fidelity, have applied for spot Bitcoin ETFs over the past few months.

If the SEC ultimately approves the company’s conversion, it could pave the way for the U.S.’s first spot Bitcoin ETF, offering investors more accessible exposure to the cryptocurrency.

The SEC now has 45 days to request an en banc hearing, which would involve a rehearing with all three judges. After this period, the court will issue a final mandate specifying the next course of action.

Grayscale’s case against the SEC highlights the inconsistency in the agency’s stance on Bitcoin-related ETFs. While the SEC has approved Bitcoin futures ETFs, it has been reluctant to greenlight spot Bitcoin ETFs due to concerns about fraud and manipulation.

The SEC argues that futures products are less susceptible to manipulation as they rely on regulated futures prices from the Commodity Futures Trading Commission (CFTC)-regulated CME.

The court’s ruling marks a crucial step forward for Grayscale and could potentially shape the landscape for Bitcoin ETFs in the United States. Investors and industry players alike await further developments in the coming weeks as the SEC reviews its decision and determines the future of GBTC conversion.

Following the news, Bitcoin is trading at $27,508.

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