The Court of Appeals for the D.C. Circuit had just granted Grayscale Investments’ petition to review a Securities and Exchange Commission (SEC) order. This ruling vacates the SEC order that had blocked the Grayscale Bitcoin Trust from listing on the NYSE Arca exchange.
Grayscale Investments first applied for its GBTC closed-end fund to be converted into an exchange-traded fund (ETF) in October 2021. This ruling finally gives Grayscale the go-ahead to begin that process.
SEC Acted in an “Arbitrary and Capricious Manner”
In July 2022, the SEC denied a proposed rule change that would have allowed NYSE Arca to list the Grayscale Bitcoin Trust. The SEC claimed NYSE Arca did not have the proper surveillance-sharing agreement related to Bitcoin trading. Grayscale challenged this decision by filing a petition for review.
Grayscale argued that the surveillance arrangements for Bitcoin futures ETFs should also satisfy the requirements for Grayscale’s spot Bitcoin ETF. It contended that both products rely on the underlying price of bitcoin, so the surveillance arrangements should be adequate for a spot bitcoin ETF just as they are for Bitcoin futures ETFs.
However, on August 29, 2023, the Court of Appeals sided with Grayscale. The court found the SEC exceeded its legal authority. It said the SEC acted in an “arbitrary and capricious manner” by requiring the surveillance-sharing agreement.
This judgment vacates the previous SEC order. Now the SEC must reconsider the proposed rule change for the Grayscale Bitcoin Trust. It can no longer demand the same surveillance-sharing agreement it claimed before.
The US Is on the Way to Its First Spot Bitcoin ETF
The ruling opens the door for the Grayscale Bitcoin Trust to move forward with listing on NYSE Arca. It is seen as a positive development for spot bitcoin exchange-traded funds (ETFs) in the United States.
The potential listing of the Trust could pave the way for other Bitcoin ETFs. Leading investment managers, including BlackRock, Invesco, and WisdomTree, await the outcome of their applications. In the case of BlackRock, controversy around shifts in its investment priorities and its presence in China may complicate the issue substantially.
Unsurprisingly, the price of Bitcoin spiked significantly following the announcement.
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