U.S. Court Overturns SEC’s Rejection of Grayscale’s Spot Bitcoin ETF Application

U.S. Court Overturns SEC’s Rejection of Grayscale’s Spot Bitcoin ETF Application

A federal appeals court has overturned the U.S. Securities and Exchange Commission’s position on Grayscale. On Tuesday, the court declared that the U.S. securities regulatory body’s dismissal of Grayscale Investments‘ bid to establish a spot bitcoin exchange-traded fund (ETF) was incorrect.

Grayscale CEO Michael Sonnenshein remarked that the court’s judgment represents a significant historic achievement for American investors, as stated in a released statement.

Following this announcement, the value of Bitcoin, the leading global cryptocurrency, surged by over 6%, reaching $27,858.

SEC Gave No Clear Reasons for Rejecting Grayscale’s Application

The recent court ruling marks a historic moment that might open the doors for introducing the inaugural product of this nature. A trio of judges from the District of Columbia Court of Appeals in Washington ruled that the Securities and Exchange Commission (SEC) didn’t adequately clarify its rationale for rejecting Grayscale’s offering. 

The judges stated that the SEC should re-evaluate its verdict in light of the lack of clarity. In June 2022, the SEC rejected Grayscale’s request for a Bitcoin ETF. It asserted that the proposal fell short of the criteria for safeguarding against fraud and ensuring investor protection.

Grayscale took legal action against the SEC. The investment firm argued that given the agency’s prior approval of specific surveillance agreements to prevent fraud in Bitcoin futures-based ETFs, a similar arrangement should be deemed acceptable for Grayscale’s spot fund. 

The SEC cited similar reasons when rejecting other applications for spot BTC ETF offerings. These include submissions from Fidelity and VanEck.

A spot bitcoin ETF would mirror the prevailing market value of bitcoin, enabling investors to gain exposure to the digital asset without the need to purchase the actual currency.

Although the verdict doesn’t guarantee immediate authorization for Grayscale’s ETF, it significantly bolsters the ongoing ten-year endeavor within the industry to push the product forward.

The Implication of the Court Ruling

The SEC holds a 45-day window to contest the ruling. A spokesperson for the agency mentioned that they are evaluating the court’s decision to determine the subsequent course of action.

The cryptocurrency sector swiftly applauded the verdict. Multiple other asset management firms, including BlackRock (BLK.N), Fidelity, and Invesco, have similar submissions awaiting SEC approval for a spot bitcoin ETF.

This is the second major legal win for the crypto industry against the SEC. A judge ruled in July that Ripple Labs had not violated federal laws by selling its XRP tokens on public exchanges to retail investors in a case brought forward by the SEC. 

Despite this outcome, the SEC plans to contest the ruling through an appeal. If the SEC proceeds with an appeal of the Grayscale ruling, the case would either be escalated to the U.S. Supreme Court or undergo a comprehensive review by the entire D.C. appeal courts.

If the SEC opts not to appeal, the court will issue a mandate detailing how the decision should be acted upon. 

This could entail directing the SEC to either grant approval for the application or to reexamine Grayscale’s proposal. In the event of the latter, the SEC could still reject the proposal on different grounds.

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