Grayscale Crypto Asset Management Firm Wins Lawsuit Against SEC

Digital asset management firm, Grayscale wins its highly anticipated case against the Securities and Exchange Commission (SEC) over the latter’s rejection of the firm’s spot Bitcoin (BTC) ETF application.

The U.S. Court of Appeals for the District of Columbia Circuit has ruled in favor of Grayscale ordering the SEC to set aside its earlier rejection of Grayscale’s application and reopen the review process.

Grayscale hinged its argument on the SEC’s approval of Bitcoin’s futures ETF surveillance stating that the model can be deployed for a spot ETF eliminating the Commission’s market manipulation fears. 

Donald Verrilli Jr., lead counsel for the plaintiff argued that a spot ETF would protect investors relying on the Chicago Mercantile Exchange (CME) oversight on the market. 

On the flip side, the SEC claimed that Grayscale Investments lacks data to determine the level of the CME futures surveillance on spot markets. 

The opinion of the judge also points to the SEC’s failure to distinguish between both products.

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

In October 2021, Grayscale Investment applied for its GBTC fund to be converted to an ETF, a move that was rejected by the SEC as the Commission cited market manipulation concerns. 

Grayscale filed an appeal against the SEC’s decision asking the court to ultimately review the order.

The build-up to this decision has seen speculations from the community on the potential outcome. While pro-BTC ETF enthusiasts viewed a possible win as a catalyst to fresh market liquidity and surging prices, others opined that even though Grayscale clinched victory, the SEC still has a right of appeal.

Grayscale Investment expressed optimism over the status of its pending lawsuit with the SEC as it announced plans to expand the ETF team on Aug. 17.

Two key positions included a product specialist and a senior associate to “contribute to investment product development ideas and work with the ETF team towards their realization.” 

What’s Next?

A win for Grayscale is perceived as a major bullish indicator following institutional investment in Bitcoin this year. 

In June asset manager BlackRock applied for a spot Bitcoin ETF, opening the door for multiple applications from several big firms including Fidelity Investments, Valkyrie, and Wisdom Tree.

These applications alongside other developments on Wall Street pushed the price of Bitcoin over $31,000 with many bulls predicting a higher price just hours after Grayscale’s win over the SEC.  

The SEC has 45 days to file an appeal to the US Supreme Court or an en banc panel review before the execution of the judgment.

If the SEC fails to appeal which many consider unlikely, it will review the application and can either accept the application or refuse it on other grounds but it must furnish explanations regarding the distinction between the spot ETF and the futures ETF on the CME. 

Although Grayscale’s win does not automatically mean a potential approval for pending ETF applications, it is a step in the right direction as the industry faces turbulent markets amid harsh regulatory policies.