The U.S. Securities and Exchange Commission (SEC) faces a critical deadline in its ongoing dispute with Grayscale Investments over the conversion of Grayscale’s Bitcoin Trust (GBTC) into a spot Bitcoin exchange-traded fund (ETF).
The SEC has only hours remaining to appeal a court order that declared its rejection of Grayscale’s application “arbitrary and capricious.” If the SEC takes no action before midnight Eastern time, Grayscale’s ETF application officially revives.
The Court’s Clear Verdict
45 days ago, the D.C. Circuit Court of Appeals delivered a decisive and critical judgment, asserting that the SEC’s denial of the application was arbitrary and capricious. The court also noted that the SEC was inappropriately treating a spot ETF differently from a similar futures ETF.
While industry observers anticipate the SEC allowing the deadline to pass, the commission technically possesses the authority to further extend the dispute if it wishes to scrutinize other aspects of the application.
Significance of the Grayscale Decision
The outcome of this dispute holds the potential for the creation of an easily traded, mainstream investment product centered on Bitcoin. A spot ETF is expected to attract investors into the cryptocurrency space. Grayscale initially applied to convert its GBTC closed-end fund (currently holding around $17 billion in assets under management) into a spot Bitcoin ETF in October 2021.
Notably, Grayscale is not the only firm seeking approval in this endeavor; major financial companies like BlackRock and Fidelity are also awaiting the SEC’s decision on their spot Bitcoin ETF applications.
Awaiting Regulatory Approval
According to Jennifer Rosenthal, a spokesperson for Grayscale,
GBTC remains operationally ready to convert to an ETF upon appropriate regulatory approvals.
The SEC has yet to respond to requests for comments on the matter.
Even in the event of a favorable decision for ETF applicants, several questions remain unanswered. It’s unclear when the first ETF will go live and which entity will launch it. SEC approvals involve various divisions within the agency and the process of approving multiple applicants simultaneously or in sequence remains uncertain.
Additionally, market experts speculate that the potential approval of ETFs by the SEC. May already be partially factored into Bitcoin’s performance making it unclear how much further the cryptocurrency will outperform in response to a favorable decision. David Duong, Head of Institutional Research at Coinbase Institutional, noted this in a recent report.