Grayscale
Investment, the Connecticut-based crypto asset manager, has scored a legal
victory over the US Securities and Exchange Commission (SEC). Today (Tuesday),
the US Court of Appeals for the District of Columbia Circuit ruled that the
SEC’s rejection of the company’s proposal to
convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin (BTC)
exchange-traded fund (ETF) was “arbitrary and capricious.”

Grayscale
Wins Legal Challenge

A spot BTC ETF tracks the current market price of Bitcoin. The instrument enables investors to get
indirect exposure to BTC.

In October
2021, Grayscale, a subsidiary of the Digital Currency Group, applied to the
SEC to list its ETF on the stock exchange, NYSE Acra. However, in June last year, the
securities regulator denied the application, noting that the proposed ETF
“was not designed to prevent fraudulent and manipulative acts and practices.” Grayscale subsequently launched a legal challenge against the regulator.

The SEC turned
down Grayscale’s proposal despite approving two
Bitcoin futures ETFs, Teucrium Bitcoin Futures Fund and Valkyrie XBTO Bitcoin Futures Fund,
in April and May 2022, respectively. Furthermore, the securities watchdog judged the surveillance-sharing agreement between the funds and the Chicago Mercantile
Exchange (CME) as
satisfactory.

However,
Grayscale’s proposal was denied despite the fact that NYSE Arca has the same
surveillance-sharing agreement with the CME. Instead, the SEC concluded
there was a risk that trading in Grayscale’s ETF would have a “predominant
influence on prices” in the CME bitcoin futures market.

In a decision reached on Tuesday, a panel
of judges at the appellate court criticized the SEC for failing to explain
why it offers “different
treatments” for similar
products. The court, therefore, ordered the regulator to “vacate” the order
against Grayscale.

“NYSE Arca
presented substantial evidence that Grayscale is similar, across the relevant
regulatory factors, to bitcoin futures ETPs,” Circuit Judge Neomi Rao explained
in a court filing. “The
Commission failed to adequately explain why it approved the listing of two
bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP.”

Judge Rao added:
“In the absence of a coherent explanation, this, unlike the regulatory
treatment of like products, is unlawful. We therefore grant Grayscale’s
petition for review and vacate the Commission’s order.”

Commenting
on the court ruling, Michael Sonnenshein, the CEO of Grayscale, in a post on X
(formerly Twitter), noted that the firm’s legal team is “actively reviewing” the
court’s ruling. Similarly, a spokesperson
for the SEC told Reuters that the regulatory authority
is evaluating
the court’s stance to
determine its next move.

🚨 JUST IN 🚨The D.C. Circuit ruled in favor of @Grayscale in our lawsuit challenging the SEC’s decision to deny $GBTC’s conversion to an ETF!Thank you to everyone who has been on this journey with us, especially our investors. We are grateful for your support and…

— Sonnenshein (@Sonnenshein) August 29, 2023

Is the First Spot
BTC ETF Coming?

Over the
last few years, several firms have applied for a spot BTC ETF with the SEC.
However, the regulator has rejected all the applications, citing fraud
concerns.

Despite
this, the crypto industry in recent months has been hopeful that trading in the
instrument will be approved. In June, an application for approval of the
ETF by BlackRock, the world’s largest asset manager, sparked a wave of similar submissions from
other companies in the sector, Finance Magnates reported.

With the
new order from the appellate court, the United States may be about to get its
first spot BTC ETF. However, it is important to point out that the order only
instructs the SEC to review its decision on the proposed ETF. It is possible that the regulator will find another fault with Grayscale’s application.

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This article was written by Solomon Oladipupo at www.financemagnates.com.