The most important element of the Grayscale vs. SEC court ruling was that the denial by SEC was arbitrary and capricious because the Commission failed to explain its different treatment of similar products i.e., futures-based bitcoin ETFs, JPMorgan said in a report Friday. According to the report, the court argued that fraud and manipulation in the spot market posed a similar risk to both futures and spot products because the spot bitcoin market and CME bitcoin futures market are so tightly correlated.
JPMorgan noted that the court ruled there was no justification to allow futures-based bitcoin ETFs but deny spot ETFs. This implies that for the SEC to defend its denial of Grayscale’s proposal to convert GBTC, it would have to retroactively withdraw its previous approval of futures-based bitcoin ETFs. The bank said that a retroactive withdrawal would be extremely disruptive and embarrassing for the SEC and therefore appears unlikely.
The report added that while the Grayscale ruling may bring closer to the eventual approval of a spot bitcoin ETF, such an approval is unlikely to prove a game changer for the crypto market. Spot-based ETFs allow investors to hold their positions indefinitely while eliminating the rollover cost associated with futures ETFs, and the crypto market is optimistic that an eventual launch of spot-based ETFs will unlock floodgates to mainstream money.