By Michael Scott
Grayscale Investments has won against the Securities Exchange Commission (SEC) as an appellate court orders it to vacate the rejection of a bid to convert Bitcoin Trust into an exchange-traded fund (ETF).
The decision conveyed by the federal appeals court signals the likelihood of the US digital asset landscape welcoming the initial spot Bitcoin exchange-traded fund (ETF). The ruling delivered by the District of Columbia Circuit appeals court granted Grayscale Investments’ plea for SEC to review the bid.
Court Delivers First Bitcoin ETF in United States
The case traces from the move by Grayscale Investments to challenge the SEC’s rejection of its bid to convert Grayscale Bitcoin Trust (GBTC) into the highly sought-after ETF. The dispute arises from the October 2021 application by Grayscale Investments, identified as the manager of the leading cryptocurrency fund.
The 2021 application sought to convert the GBTC closed-end fund into an ETF. Unfortunately, the SEC denied the application, alleging that the applicant hardly addressed the SEC’s concerns about averting market manipulation.
Grayscale would appeal the SEC’s decision barely an hour after the Gary Gensler-led agency dismissed the application. The June 2022 filing urged the Court of Appeals to review the decision reached by the SEC.
Grayscale Investments Win Could Prompt Immediate Approval of Bitcoin ETFs
The decision by the appeals court handing Grayscale Investments a win against the SEC coincides with the wave of applications filed by asset management firms for the spot Bitcoin ETFs. The BlackRock application in June yielded optimism that the SEC would approve the Bitcoin ETF.
Other mutual fund and asset managers would apply, led by Fidelity. The applicants’ list expanded to include ARK 21Shares, BitWise, VanEck, Wisdom Tree, Invesco Galaxy, Valkyrie, Wise Origin, and, recently, Hashdex.
The Grayscale Bitcoin Trust (GBTC) product has been trading at the discounted price of the underlying Bitcoin asset since February 2021. The discount increased to a record 50% following the December reiteration by the SEC, affirming the denial to approve the bid to convert into the ETF. The discount would narrow to hover around 25%, making it the smallest since 2022 as other names sought approval for the Bitcoin spot ETFs.
Market analysts and enthusiasts for crypto derivatives have affirmed that converting the closed-end GBTC fund into an ETF would erode the discount. They cited the tendency of ETF trading to be closer to fair value.
Grayscale Set to Alter Structure to Accomodate Post-win Additions
The win at the court of appeals would prompt adjustment of the fund, though, with the expectation to retain several elements. Grayscale Investments would likely register the shares with the Gensler-led SEC as stipulated under the Securities Act of 1993. GBTC shares leveraged the private placement process to offer the shares. Such restricted the share’s access to the accredited investors though subjected to a 180-day holding period.
Grayscale would likely alter the shares structure by uplisting them from the over-the-counter (OTC) to the NYSE Arca. Its accomplishment would facilitate the redemptions previously prohibited under the existing structure. Also, Grayscale indicated it would lower the fees upon conversion to a capped annual fee of 2%.
Market Outlook Following Grayscale Win
A review of the digital asset industry activity following the appeals court decision shows a bullish momentum, with the global crypto market rallying 2.14% to $1.07 trillion in the past 24 hours.
The daily crypto market volume increased by 4.81% to $23.67 billion. The ruling uplifted the market from the red zone, with decentralized finance (DeFi) witnessing an unlikely gain of 7.32% to $1.73 billion in the past 24 hours.
Bitcoin is an obvious beneficiary of the Grayscale win in court. Its dominance averaged 48.66%, a 0.31% increase in the day. At press time 16:00 UTC, the largest token by market capitalization was exchanging hands at $27,422.32, being 5.12% up in a day.
Bitcoin has gained a bullish momentum powered by Grayscale’s win in court to test the day’s high of $27,688.66 despite earlier testing the $25,912.63. The bullish momentum witnessed across the digital asset tokens leaves Bitcoin 60.21% away from its all-time high of $68,789.63 realized in November 2021. It is prudent to watch how the market will process the Grayscale win relative to the SEC’s statement and conduct.
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