Grayscale Wins Court Ruling Against SEC in Bid for Bitcoin ETF

Image Credits: CryptoAvanza

  • Grayscale, a US asset management company, has won a court ruling against the Securities and Exchange Commission (SEC) in a bid for an exchange-traded fund (ETF) linked to Bitcoin.
  • The company’s main investment vehicle, the Grayscale Bitcoin Trust, was denied the ETF by the SEC, putting pressure on SEC Chair Gary Gensler.
  • The decision has led to a 6% increase in bitcoin’s value and a 65% increase in the value of bitcoin this year.

Grayscale, a company that manages assets, has achieved a significant victory in the legal arena against regulatory authorities in the United States.

The company’s goal is to introduce an exchange-traded fund (ETF) linked to Bitcoin, which would be listed on a US exchange. Recently, a federal appeals court in Washington DC ruled that the Securities and Exchange Commission (SEC) made a mistake when it denied Grayscale’s request to transform its main investment vehicle, the Grayscale Bitcoin Trust, into an ETF.

This ruling is putting a lot of pressure on SEC Chair Gary Gensler, who has been actively taking enforcement actions against various players in the cryptocurrency sector throughout this year.

As a result of the court’s decision, the value of bitcoin experienced a roughly 6 percent increase on Tuesday. So far this year, the value of Bitcoin has gone up by 65 percent. At the same time, shares of Coinbase saw a rise of more than 13 percent.

The lawsuit brought by Grayscale revolved around whether the investment company could create an ETF tied to the real-time price movements of Bitcoin. While the SEC had previously approved ETFs based on bitcoin futures contracts, the regulator argued that bitcoin is traded on unregulated exchanges and could be manipulated in the market.

Judge Neomi Rao, writing on behalf of a panel of three judges within the District of Columbia Circuit Court of Appeals, explained, “The SEC’s rejection of Grayscale’s proposal lacked a consistent reasoning and was done without sufficient explanation for treating similar products differently.” This led the panel to overturn the SEC’s decision to block the creation of the real-time Bitcoin ETF.

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The SEC has expressed its intention to review the court’s ruling. The regulator still has the option to appeal to either the full federal appeals court or the Supreme Court. However, it’s not clear which path it will choose.

Despite the SEC’s strong stance on the cryptocurrency industry, the demand for a real-time bitcoin ETF has been growing. Traditional financial companies like BlackRock, WisdomTree, and Fidelity have also shown interest in entering this space with similar ETF proposals. Currently, the SEC is reviewing about six other proposals for real-time bitcoin ETFs.

Jeremy Senderowicz, a representative from the law firm Vedder Price, commented, “With this court ruling, the SEC’s previous arguments against allowing these products to launch have been seriously challenged. If this decision holds, it would undermine the fundamental basis the SEC has used to reject all real-time bitcoin ETFs in recent years.”

According to the Financial Times, Grayscale spokesperson Jennifer Rosenthal said, “This legal decision is a significant step forward for American investors, the wider bitcoin ecosystem, and all those who have been advocating for exposure to bitcoin through the safety measures provided by an ETF structure.”

Today’s events are important for two main reasons. Firstly, the emergence of ETFs is significant because they can bring more people into cryptocurrency investments through a traditional and well-regulated avenue.

Secondly, similar to the ruling involving Ripple in July, the recent decision by the US Court of Appeals highlights that the SEC doesn’t have absolute authority as the ultimate decision-maker in matters related to the cryptocurrency space.

Congressman Calls for Removal of SEC Chair

On another note, US Representative Warren Davidson from Ohio has taken a stand, urging the SEC to remove its current chair, Gary Gensler. He expressed this view in a recent statement on his X account.

Congressman Davidson cites a judicial opinion written by Circuit Judge Rao, which agrees that the SEC’s rejection of Grayscale’s ETF proposal lacked logical reasoning and consistency. The opinion points out the Commission’s failure to justify treating similar products differently. As a result, the court supported Grayscale’s request and invalidated the SEC’s directive.

This isn’t the first time Congressman Davidson has expressed dissatisfaction with SEC Chair Gensler and called for his removal. Back in July, he introduced a legislative proposal to restructure the SEC and remove its chair.

Davidson referred to Gensler as an “authoritarian chairman” who requires congressional intervention to protect the markets.

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Just last month, Davidson stated, “The time has come for significant reform and for Gary Gensler to be removed from his role as SEC Chair.”

This call for a change in leadership has been consistent, driven primarily by concerns about the potential impact of the SEC’s actions on the industry, which could potentially weaken the digital asset ecosystem in the US.