In a major legal victory for the cryptocurrency industry, Grayscale Investments has won its lawsuit against the Securities and Exchange Commission (SEC). Earlier this year, Grayscale filed the lawsuit after the SEC rejected its application to convert the Grayscale Bitcoin Trust (GBTC) into a spot bitcoin exchange-traded fund (ETF).
On Tuesday, August 29, 2023, the U.S. Court of Appeals for the D.C. Circuit ruled in favor of Grayscale, striking down the SEC’s basis for rejecting the application. The SEC had argued that it lacked sufficient data to determine whether fraud and manipulation in the bitcoin spot market would impact bitcoin futures markets. However, the court found that the futures price of bitcoin is highly correlated with the spot price, and therefore fraud in the spot market would be reflected in the futures market.
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Show more +“Grayscale has demonstrated its proposed bitcoin ETP is materially similar, across relevant regulatory factors, to the approved bitcoin futures ETPs,” it’s written in the ruling. “First, the underlying assets – bitcoin and bitcoin futures – are closely correlated. And second, the surveillance sharing agreements with the CME are identical and should have the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin and bitcoin futures.”
The ruling sets an important precedent and could pave the way for other bitcoin spot ETF applications before the SEC. Several other high-profile asset managers have filed for spot bitcoin ETFs, but so far none have been approved. This court decision puts major pressure on the SEC to approve a spot bitcoin ETF.
The years-long battle between the SEC and the crypto industry over bitcoin ETFs highlights the ongoing tensions over crypto regulation in the U.S. While the SEC has cracked down on certain cryptocurrency products, the agency has also been criticized for lack of clear guidance and stifling of financial innovation around digital assets. The Grayscale lawsuit was seen as a critical effort to push the boundaries of what’s allowed.
The availability of such an ETF would provide millions of American retail investors with simple access to bitcoin exposure through traditional brokerage accounts for the first time.
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