The U.S. Securities and Exchange Commission (SEC) will not appeal a court ruling that found it was wrong to reject an application from Grayscale Investments to create a spot bitcoin exchange-traded fund (ETF), according to a source familiar with the matter. The District of Columbia Court of Appeals had ruled in August that the SEC was in the wrong for rejecting Grayscale’s proposed bitcoin ETF, a decision that has been closely watched by the industry. The SEC’s decision not to appeal opens the door for the agency to review Grayscale’s application.
A spot bitcoin ETF would allow investors exposure to bitcoin without actually owning it. The SEC has denied all spot bitcoin ETF applications thus far, including Grayscale’s, on the grounds that applicants have failed to demonstrate they can protect investors from market manipulation.
Grayscale had sued the SEC, arguing that because the agency had previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should be satisfactory for Grayscale’s spot ETF. The appeals court agreed, ruling that the SEC arbitrarily denied Grayscale’s application without explaining why the two arrangements were materially different.
The appeals court is expected to issue a mandate specifying how its decision should be executed, most likely instructing the SEC to revisit Grayscale’s application. Several other asset managers, including BlackRock, Fidelity, and Invesco, have similar applications pending with the SEC for a spot bitcoin ETF. The SEC is due to make decisions on those applications by next year at the latest.
Grayscale Investments is a digital currency asset management firm that offers cryptocurrency investment vehicles. The company currently operates several investment trusts, including the Grayscale Bitcoin Trust (GBTC), which enables investors to gain exposure to bitcoin through a traditional investment structure. The approval of a spot bitcoin ETF would provide another avenue for investors seeking exposure to the cryptocurrency.