A federal court has ruled that the U.S. Securities and Exchange Commission (SEC) must review its rejection of Grayscale Investments’ attempt to convert the Grayscale Bitcoin Trust (GBTC) into an ETF, potentially opening the door for a spot bitcoin ETF in the U.S. Advocates have long argued that allowing this type of product would enable a greater swath of the general public to invest in bitcoin without having to go through the trouble of buying it directly or deal with potential issues like their custody providers collapsing.
Circuit Judge Neomi Rao said that federal agencies are required to treat like cases alike and that the SEC’s denial of Grayscale’s application was arbitrary and capricious as it did not explain why it was treating these products differently. The ruling seemed to specify that the issue wasn’t the SEC’s rejection of the application so much the agency’s failure to properly explain itself.
Grayscale has demonstrated its proposed bitcoin ETP is materially similar, across relevant regulatory factors, to the approved bitcoin futures ETPs, the ruling said. The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP. In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. We therefore grant Grayscale’s petition for review and vacate the Commission’s order.
A Grayscale spokeswoman called the move a monumental step forward for American investors, adding that the legal team was reviewing the opinion and would be pursuing next steps with the SEC. Grayscale CEO Michael Sonnenshein echoed the statement in a social media post.
The court decision comes after a flurry of large institutions filed applications for spot bitcoin ETFs, with asset manager BlackRock filing its application in June. The Grayscale product has traded at a discount to the underlying asset since February 2021, but following large names filing for bitcoin spot ETFs, GBTC saw its discount narrow to levels of around 25%. Market analysts have long said that the conversion from a closed-end fund to an ETF will likely eliminate the discount of GBTC entirely, due to the nature of ETFs which generally trade close to their fair value.