May 26, 2024
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The court ruled that SEC’s denial of a bitcoin ETF was “arbitrary and capricious”

The D.C. Circuit Court of Appeals has ruled in favor of Grayscale, a digital asset management firm, in a lawsuit against the U.S. Securities and Exchange Commision (SEC) on the matter of a bitcoin ETF, according to a legal filing on Tuesday.

This ruling is in response to Grayscale’s lawsuit against the SEC, which denied the firm’s application to convert its Grayscale Bitcoin Trust (GBTC) into an exchange traded fund, or ETF, on June 29, 2022.

“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” the filing stated. “We therefore grant Grayscale’s petition and vacate the order.”

The court ruled 3-0 in favor of Grayscale, which currently owns 3.4% of outstanding bitcoin, “worth tens of billions of dollars,” according to the filing.

To many in the crypto space, the ruling represents a huge victory. The news was so welcome that within minutes of the courts’ ruling on Tuesday, bitcoin’s price rose over 7% to nearly $28,000.

“This judicial decision is a monumental step for the whole cryptocurrency sector, including Grayscale,” Yusuf Sevim, CEO of blockchain tech-focused MetaTime, told TechCrunch. “It gives a legal and financial stamp of approval, encouraging more traditional investors to venture into the space.” It also set an “encouraging example” that could affect financial markets beyond the United States, Sevim said.

That’s not hyperbole. A company being able to offer a bitcoin spot ETF could allow folks in the traditional financial world to buy into the crypto market using their existing investing services — companies like Fidelity and Vanguard that may hold retirement assets, for example.

Bringing bitcoin to the TradFi market in a manner that is already well-understood from an operational, trading and fee perspective has the potential to unlock lots of demand for the cryptocurrency in the near-term. Such interest could lead to the ETF in question buying more total bitcoin to meet demand, shifting crypto’s supply equation. More demand with flat supply would send the price up, in other words.

When Grayscale’s application was denied a little more than a year ago, Michael Sonnenshein, the company’s CEO, stated that he was “deeply disappointed” and “vehemently disagree[d]” with the SEC’s decision.

Today, Sonnenshein is singing a different tune.

“This is a monumental step forward for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper,” said Jennifer Rosenthal, a spokeswoman for Grayscale.

Sending a message

This is the latest blow in a series of “losses” for the SEC. Last month, a federal court ruled partially in favor of Ripple Labs and its XRP token, stating that the cryptocurrency is not a security when it comes to public sales, but could be considered one in some cases for institutional sales. The SEC is appealing the decision.





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