Win Over SEC Ups Chances for Bitcoin ETF Approval
Grayscale Investments’s court victory over the Securities and Exchange Commission (SEC) on Tuesday sent cryptocurrency prices soaring, as the market eyes a ruling that may allow the first ever cryptocurrency-based exchange-traded fund (ETF).
If Grayscale’s bitcoin ETF gets approved, it would be the first time a cryptocurrency is directly tradable on the traditional stock market and available to any investor with a brokerage account.
The SEC denied Grayscale’s application to turn its bitcoin fund into an ETF last year, but the company sued the agency saying that approvals for similar crypto-related ETFs show that their product should be approved as well.
The D.C. Circuit Court of Appeals sided with Grayscale, sending the ETF application back to the SEC for reconsideration.
“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” Circuit Judge Neomi Rao wrote.
Bitcoin prices are up about 6 percent on the news, along with top crypto-related companies including exchange Coinbase, which saw its shares rise 14 percent Tuesday. Ether, the second largest cryptocurrency, rose in price by about 5 percent.
Major asset managers including Fidelity, Invesco and BlackRock have also applied to create cryptocurrency-based spot ETFs, which would invest directly in cryptocurrency assets and are expected to closely track the price of cryptocurrencies.
The SEC previously approved ETFs based on cryptocurrency futures, but never the assets themselves. That discrepancy sparked the Grayscale lawsuit.
Grayscale hailed the ruling, saying 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 have argued that a cryptocurrency ETF will buoy the sector by allowing mainstream investors to enter the cryptocurrency space without having to own the coin themselves. Instead, they'd be investing into a fund which owns the coin.
The proposed ETF is based on the company’s already existing Bitcoin Trust, which saw its shares rise by about 13 percent. It has more than $16 billion in assets.
The company argued in its appeal that its status as a trust has prevented it from selling its assets appropriately, therefore driving down its price over time. They argue reclassification as an ETF would solve that problem.
The court decision may hobble SEC Chairman Gary Gensler, who has attempted to make cryptocurrency regulation a top priority. He once called the industry like the “Wild West” and has repeatedly asked Congress for more authority to regulate the sector.
It is unclear if the SEC plans to appeal the decision.
“We are reviewing the court’s decision to determine next steps,” the agency said in a statement.