Stamford-headquartered Grayscale Investments scored a legal victory today as the D.C. Circuit Court of Appeals ruled in its favor in a lawsuit that challenged a decision by the U.S. Securities and Exchange Commission (SEC) to deny conversion of its Grayscale Bitcoin Trust (GBTC) (OTCQX: GBTC) into an exchange-traded fund (ETF).
GBTC is an investment vehicle that buys Bitcoin and sells shares to investors; it currently holds $16.2 billion in Bitcoin and charges investors a 2% annual management fee. Grayscale Investments, which has $16 billion under its management, opted to pursue an ETF format for GBTC.
ProShares became the first futures-based Bitcoin ETF approved by the SEC in October 2021, but the regulator has rejected multiple applications from other companies seeking to offer a similar vehicle. The SEC vetoed rejected Grayscale’s application in June 2022 with the argument that the company inadequately addressed concerns over investor protections and market manipulations. But in today’s ruling, the court questioned the SEC’s approach to the subject.
“The denial of Grayscale’s proposal was arbitrary and capricious,” the court said in its ruling. “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP. In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. We therefore grant Grayscale’s petition for review and vacate the Commission’s order.”
“This is a historic milestone 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 Grayscale CEO Michael Sonnenshein. “Grayscale has adhered to U.S. financial rules and regulations in building our product suite since our founding in 2013, underpinned by one fundamental belief: investors deserve transparent, regulated access to crypto. It’s incredibly exciting that we are one step closer to making a U.S. spot Bitcoin ETF a reality.”
After the court’s ruling, GBTC jumped by 16.95% in trading. The SEC issued a statement following the ruling that said, “We are reviewing the court’s decision to determine next step.”
