In a significant move, the U.S. Securities and Exchange Commission (SEC) has chosen not to appeal a recent court judgment, which declared the SEC's rejection of Grayscale Investments' bid to establish a spot bitcoin exchange-traded fund to be unjust. The decision not to contest the ruling may accelerate the review process for Grayscale's application.
Grayscale's proposed spot Bitcoin ETF would grant investors exposure to the world's largest cryptocurrency, bypassing direct ownership. However, the SEC has consistently denied all spot Bitcoin ETF applications, including Grayscale's, citing concerns about insufficient measures to protect investors from market manipulation. Grayscale, in response, argued that the SEC's approval of surveillance agreements for Bitcoin futures-based ETFs should be deemed sufficient for their spot ETF.
The crux of Grayscale's legal battle centered around the SEC's inconsistent treatment of spot and futures Bitcoin ETFs, despite both carrying similar risks and being based on the same underlying spot markets. Grayscale contended that both types rely on Bitcoin's price and thus should be handled equitably. The appeals court agreed, stating that the SEC did not adequately explain the difference between the two arrangements, resulting in an arbitrary rejection of Grayscale's application.
The SEC's decision not to challenge the court's ruling will now open the door for other asset managers, such as BlackRock, Fidelity, and Invesco, who have similar spot Bitcoin ETF filings pending with the SEC. The SEC is expected to make decisions on these applications by next year, at the latest.