In a significant development, the U.S. Court of Appeals for the D.C. Circuit has opened the doors for the introduction of bitcoin exchange-traded funds (ETFs). The court ruled in favor of Grayscale in a legal battle against the Securities and Exchange Commission (SEC). The SEC had previously denied Grayscale's request to transform the Grayscale Bitcoin Trust into an ETF.
This pivotal decision, handed down on Tuesday, aligns with Grayscale's stance and challenges the SEC's refusal to convert the Grayscale Bitcoin Trust into an ETF. The far-reaching implications of this ruling could extend to other companies aiming to establish bitcoin ETFs, such as industry giants BlackRock and Fidelity.
An ETF tied to the value of bitcoin would be traded through conventional stock exchanges. However, the custody of the actual bitcoins would remain with a brokerage. This structure would offer investors an avenue to participate in the performance of the world's largest cryptocurrency without requiring direct ownership of the digital asset. Enthusiasts of cryptocurrencies anticipate that the approval of such a bitcoin ETF could stimulate wider adoption by institutional investors.
The news of this development triggered notable surges in the value of major cryptocurrencies like bitcoin and ether. Additionally, Coinbase, the custodial partner mentioned in multiple spot bitcoin ETF applications, saw its stock price rise by over 14% on the same day.
The court criticized the SEC's inconsistency in its decision-making process, highlighting its approval of two bitcoin futures exchange-traded products (ETPs) while rejecting Grayscale's proposal for a bitcoin ETP. The court's verdict questioned the lack of coherent reasoning behind these divergent regulatory actions.
Grayscale Investments, the manager of the largest cryptocurrency fund globally, initiated legal proceedings against the SEC in June 2022 after the agency dismissed its request to convert its flagship bitcoin fund (known by its ticker GBTC) into an ETF. Grayscale's pursuit of an ETF was motivated by the SEC's approval of ProShares' futures-based bitcoin ETF in October 2021. Grayscale's application faced delays and, ultimately, rejection by the SEC in the previous summer. The SEC cited Grayscale's inadequate responses to inquiries concerning concerns about potential market manipulation and investor safeguards.
The SEC expressed its intention to review the court's verdict before determining its next course of action. Grayscale welcomed the court's decision as a significant advancement, particularly for American investors seeking exposure to bitcoin through the enhanced protections provided by an ETF.
The Grayscale team, together with its legal advisors, is thoroughly examining the court's opinion and planning the subsequent steps to engage with the SEC. Grayscale aims to provide further details as soon as feasible.
As of Tuesday, the Grayscale Bitcoin Trust holds $16 billion in assets under management. It was launched in 2013, well ahead of the approval of bitcoin ETFs in Canada and bitcoin futures ETFs in the U.S. Grayscale levies a 2% annual fee on investors, contributing substantial revenue to its parent company, Digital Currency Group, under the leadership of Barry Silbert.
Industry experts anticipate that this court victory for Grayscale augurs well for the potential approval of bitcoin ETF applications from other players like BlackRock and Fidelity. Dave Weisberger, CEO of CoinRoutes, is optimistic about their prospects, suggesting that while Grayscale might need to resubmit its application, it's highly likely to receive approval.
Despite the SEC's consistent denial of spot bitcoin ETF proposals since 2021, investor optimism was revived when BlackRock, a colossal asset management firm overseeing around $9 trillion, submitted its own application. The firm boasts an impressive track record of having almost all of its 575 previous ETF applications accepted.
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