Grayscale BTC ETF Will Not Appeal SEC Decision

Sources familiar with the matter report that the Securities and Exchange Commission will not appeal the recent court order ordering Grayscale Investments to convert its bitcoin trust into an ETF.

In August, a federal appeals court judge found that the SEC had arbitrarily rejected crypto advocated’s proposal – an event many saw as being pivotal for their industry.

Appealing the Court’s Decision

Grayscale Investments LLC recently received approval from the SEC to convert their Bitcoin Trust (GBTC) into the first ETF that invests directly in global cryptocurrency, according to Fox Business journalist Eleanor Terrett’s tweets. Although they could file an appeal before midnight Friday, according to Terrett’s tweets they do not intend to submit one.

A recent ruling by a three-judge panel at the U.S. Court of Appeals in Washington was widely recognized as a major victory for Grayscale and an indictment of SEC Chair Gary Gensler’s prior approach, in that they failed to provide sufficient reasons why Grayscale’s application would differ materially from previous futures-based products that the agency approved in August.

Investors were delighted by this news, sending the price of Bitcoin up over 7% in response to it and ushering in what appears to be its first ever ETF launch within months. Furthermore, due to SEC’s refusal to appeal the court ruling it likely clears the path for other applications for bitcoin ETFs such as those submitted by BlackRock and Fidelity to proceed as planned.

Process could face some potential hurdles, however. For instance, if the SEC sends the GBTC application back for further review it could face new obstacles from other investors or from the New York Stock Exchange which has responsibility for reviewing all ETFs to ensure they comply with securities law and investor protection regulations.

SEC may postpone making its decision until all necessary information has been gathered from New York Stock Exchange, potentially delaying approval. Many observers, however, believe that their decision not to appeal is enough for approval to begin early and could come as early as January; Bloomberg Intelligence analysts recently predicted there was a 75% chance the SEC would approve an ETF by the end of 2023.

The SEC’s Decision Not to Appeal

The SEC recently decided not to appeal a court decision that will permit Grayscale Investments’ Bitcoin Trust (GBTC) to become an exchange-traded fund (ETF). This marks an important step toward bringing spot Bitcoin ETFs into US markets.

Grayscale was delighted by a court’s ruling to overturn the SEC’s rejection of their proposal for an ETF, which they saw as being arbitrarily and capriciously decided by former chairman Gary Gensler of the SEC. Crypto advocates applauded it as an important victory against his approach as former SEC Chairman.

Even with this victory, however, there is still no assurance that the GBTC ETF will eventually be approved. The SEC may appeal the ruling or even bring its case before a larger court in order to increase their odds of securing a favorable decision – however this would likely delay approval and even result in it being rejected once more.

Realistically, the SEC should accept and move forward with its review of the court ruling without comment. They may issue a mandate specifying how the ruling should be carried out – which might include instructions to revisit GBTC ETF applications.

The SEC will likely continue evaluating other ETF applications from various asset managers such as BlackRock, Fidelity and Valkyrie that have been submitted. All are waiting a decision from the agency by next year at latest.

No matter if or when GBTC ETF receives approval from SEC, it will likely be the first such fund in America to launch. Its success could spark an explosion of similar ETFs seeking to capitalize on demand for exposure to Bitcoin market, ultimately leading to major increases in value of cryptocurrency itself – something positive that ensures market health and liquidity.

The SEC’s Decision Not to Reverse the Court’s Decision

Sources familiar with the matter report that the SEC will not pursue an appeal of an August decision that allows Grayscale to launch its spot Bitcoin ETF, according to a source familiar with it. Instead, the US securities regulator plans on upholding the three-judge panel’s ruling that rejecting Grayscale’s application was arbitrary and capricious.

The court decision, widely seen as a blow against SEC Chair Gary Gensler’s approach, revealed inconsistencies between futures and spot markets when treating ETFs for both. For example, they approved ETFs backed by bitcoin futures while rejecting those tied to spot markets they claimed were more susceptible to manipulation. A three-judge panel found the SEC failed to explain why their arrangements differed materially, suggesting they were acting arbitrarily and capriciously.

In an additional order, the panel also requested that the Securities and Exchange Commission reconsider its ban of a spot Bitcoin ETF on grounds that it was inconsistent with their own regulation of the industry. If successful, this move could pave the way for approval of ETFs from major investors like BlackRock and Fidelity as well as startups such as Ark Invest and 21Shares.

James Seyffart of Benzinga’s Senior ETF Analyst predicts a 90% chance that the SEC will approve a spot Bitcoin ETF within 240 days after court ruling if they do not appeal further and choose not to further appeal it on any different basis; otherwise they face another legal challenge in federal court.

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The SEC’s Decision to Continue to Evaluate the Proposal

Following the court’s ruling, the SEC released a statement in which they pledged their intention to evaluate Grayscale Investments’ application and consider if their proposed ETF meets requirements to protect investors from fraudulent or manipulative trading practices. They also reiterated their stance regarding potential market manipulation within cryptocurrency space.

The SEC has come under considerable fire from crypto investors due to its refusal to approve an ETF for bitcoin, with many demanding that regulator accept the industry and embrace its growth. Furthermore, multiple companies such as Ripple Labs, Binance, and Coinbase, as well as individual investors are engaged in litigation against it over this issue.

Early this month, a federal appeals court sided with Grayscale and reversed SEC chair Gary Gensler’s position against its request for information from Grayscale. A three-judge panel from the DC Circuit Court of Appeals determined that this rejection had been both arbitrary and capricious.

Grayscale’s proposal was rejected by the SEC due to their failure to adequately explain why different arrangements existed, although both used bitcoin as the underlying price. According to the court, this failed explanation resulted in them arbitrarily turning down Grayscale’s ETF application.

Grayscale’s application for a spot ETF seeks to address the discount between its share prices and bitcoin prices, and their underlying valuation. They contend that by turning their fund into an ETF investors would easily create and redeem shares; their structure enables this with creation-redemption model so new shares may be issued to meet demand while existing ones can be sold back off to reduce overall supply.

Current SEC applications related to bitcoin from BlackRock and Fidelity will soon be decided; whether the SEC accepts or rejects them will depend on what happens over time. BlackRock and Fidelity’s decisions not to appeal the court ruling was seen as an encouraging sign by those advocating for a spot bitcoin ETF.