The SEC’s loss in court Tuesday means that the agency must go back and review Grayscale’s spot bitcoin ETF application — but don’t expect any products to come to market soon.
In a ruling issued earlier Tuesday, the U.S. Court of Appeals for the District of Columbia Circuit wrote that the Securities and Exchange Commission could not explain why it denied Grayscale’s application, as it had approved bitcoin futures exchange-traded funds.
“In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful,” the court wrote.
The news was quickly welcomed by the crypto investing community, and it’s something that the many firms that have filed for spot bitcoin ETFs will be watching closely. But the next steps are cloudy, as the SEC could appeal the decision — and even if it doesn’t, it could still reject the Grayscale application.
Although the regulator has approved bitcoin futures products, it has pointed to potential manipulation and a lack of investor protection as problems for spot crypto ETFs. Grayscale had filed to convert its Bitcoin Trust to an ETF.
“This is a historic milestone for American investors, the bitcoin ecosystem and all those who have been advocating for bitcoin exposure through the added protections of the ETF wrapper,” Grayscale CEO Michael Sonnenshein said in an announcement. “Grayscale has adhered to U.S. financial rules and regulations in building our product suite since our founding in 2013, underpinned by one fundamental belief: investors deserve transparent, regulated access to crypto. It’s incredibly exciting that we are one step closer to making a U.S. spot bitcoin ETF a reality.”
Numerous firms have filed applications this year with the SEC for spot bitcoin products, including massive asset managers such as BlackRock and Fidelity.
“This is really big news — not just for Grayscale, but for the other issuers who have filed for spot bitcoin ETFs over the past few months,” said Roxanna Islam, associate director of research at VettaFi. “The most important thing to remember … is that this does not mean that the SEC is automatically approving a spot bitcoin product. What it does is open up a path to it.”
Even if the SEC does green-light a spot bitcoin ETF, Grayscale’s might not be the first, as other firms filed earlier and are essentially in the front of the approval line, Islam said.
Even so, “Grayscale has a step up among the other issuers, just because they have a trust product out there that already has assets in it, and they’ve been a huge name in this legal battle,” she said.
In a statement, an SEC spokesperson said the regulator is reviewing the court’s decision before deciding its next steps.
The Crypto Council for Innovation characterized the ruling as a step forward for all cryptocurrency products and providers.
“This is big, positive, and precedent setting news,” Ji Kim, the council’s head of global policy, said in a statement. “It provides the obvious reminder that it is critical for regulators to provide much needed clarity and rationale when making such critical determinations affecting such a significant industry. The door is now open for a range of investors, including those who have historically been apprehensive due to a lack of regulatory clarity.”
“Retail investors have been waiting for a bitcoin spot ETF for quite some time now, although the discussion/excitement has certainly died down during the sell-off over the last 21-plus months,” Vaughn Kellerman, associate wealth advisor at HCM Wealth Advisors, said in an email.
The availability of a spot bitcoin ETF would provide an alternative to buying the cryptocurrency on an exchange — which, given the recent problems with FTX and others, has discouraged people, Kellerman said. And an ETF would also allow investors to get exposure to the cryptocurrency in individual retirement accounts, he noted.
“While I believe buying and storing bitcoin on your own hardware wallet is the best choice, there is a need for a spot Bitcoin ETF for the asset to take the next major jump forward regarding larger overall adoption both from the retail investors and institutional investors,” he said.
Not everyone feels that way.
“The [Sam Bankman-Fried] case and the trial of a former president will prove to the investing public that crypto is a pyramid scheme, so my recommendation to anyone that asks is to stay away,” Michael Hansen, managing partner of Frontier Wealth Strategies, said in an email. “If you have an appetite for risky investments, find a PE deal for a tech startup, because now is a great time for doing so.”