Grayscale Investments achieved a significant victory in court against the Securities and Exchange Commission (SEC) on Tuesday, resulting in a surge in cryptocurrency prices. This development has brought attention to the possibility of the first-ever cryptocurrency-based exchange traded fund (ETF).
If Grayscale’s Bitcoin ETF is approved, it will signify a groundbreaking moment as it would be the first time a cryptocurrency is directly tradable on the traditional stock market, accessible to any investor with a brokerage account.
Last year, the SEC denied Grayscale’s application to convert its Bitcoin fund into an ETF. In response, Grayscale filed a lawsuit against the agency, arguing that other crypto-related ETFs had received approval, implying that their product should be approved as well.
The D.C. Circuit Court of Appeals ruled in favor of Grayscale, sending the ETF application back to the SEC for reconsideration.
Circuit Judge Neomi Rao stated, “The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.”
Following this news, Bitcoin prices rose approximately 6 percent, and top crypto-related companies, including Coinbase, experienced a 14 percent increase in their shares on Tuesday. The price of Ether, the second-largest cryptocurrency, also increased by about 5 percent.
Major asset managers such as Fidelity, Invesco, and BlackRock have also submitted applications to create cryptocurrency-based spot ETFs. These ETFs would directly invest in cryptocurrency assets and are expected to closely track the cryptocurrency price movements.
Prior to this ruling, the SEC had approved ETFs based on cryptocurrency futures but had never approved ETFs based on the assets themselves. This discrepancy led to the Grayscale lawsuit.
Grayscale praised the court’s decision, stating that it is “a monumental step for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper.”
Cryptocurrency advocates believe that a cryptocurrency ETF would provide a boost to the sector by allowing mainstream investors to enter the cryptocurrency space without directly owning the coins. Instead, they would be investing in a fund that holds the coins.
The proposed ETF is based on Grayscale’s existing Bitcoin Trust, which saw its shares rise by approximately 13 percent. The trust currently holds over $16 billion in assets.
In its appeal, Grayscale argued that its status as a trust has hindered it from selling its assets effectively, resulting in a decline in its price over time. They contend that re-classification as an ETF would resolve this issue.
The court’s decision may pose a challenge to SEC Chair Gary Gensler, who has prioritized cryptocurrency regulation. Gensler has compared the industry to the “Wild West” and has repeatedly sought more regulatory authority from Congress.
It is currently unclear whether the SEC plans to appeal the court’s decision.
“We are reviewing the court’s decision to determine next steps,” the SEC stated in a press release.
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