In the wake of a significant court ruling, Grayscale Investments, a leading cryptocurrency asset management firm, is urging the U.S. Securities and Exchange Commission (SEC) to promptly act on its request to convert its main Bitcoin fund into a spot exchange-traded fund (ETF). This call to action came on Thursday, following a U.S. Appeals Court siding with Grayscale on August 29, contradicting the SEC's prior refusal to allow the conversion of the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF.
Grayscale's legal team sent a formal letter to the SEC on Sunday, insisting on a meeting to discuss future steps. The company maintains that the SEC should no longer differentiate GBTC from Bitcoin futures ETFs, which the regulator has previously approved. In the correspondence, Grayscale emphasized that if the SEC had any further concerns about the conversion beyond compliance with the Exchange Act's mandates against fraudulent and manipulative conduct, such issues should have already been addressed.
The asset manager pointed out that its application for fund conversion has been in progress longer than what is deemed acceptable by the SEC's own guidelines. Grayscale asserted that the Appeals Court ruling removed any remaining legal barriers to block the conversion of GBTC to a spot ETF and highlighted a lack of legal justification to distinguish a Bitcoin futures ETF from a spot Bitcoin ETF.
Joseph A. Hall, who penned both this latest letter and an earlier one in July, underscored the urgency for the SEC to take action. He argued that nearly one million investors in the Trust deserve an equal playing field without unnecessary delays.
Notably, since the court ruling on August 29, GBTC's discount rate— an indicator comparing how closely an ETF's trading price aligns with its actual asset value—has improved. It dropped to 20% after hovering near negative 50% in December 2022, a period marked by the FTX market crash.
The SEC now faces a crucial decision that could significantly influence the future of Bitcoin investments in the country. It could appeal the court's verdict, approve some or all of the nine pending applications for a spot Bitcoin ETF, or come up with a new rationale for denial. Major players like Ark, Bitwise, and BlackRock (NYSE:BLK) have submitted these applications. The regulator has until January 10, 2024, to make this decision.
This situation follows a recent court ruling challenging the SEC's long-standing reasons for denying spot Bitcoin ETFs. The U.S. Court of Appeals for the D.C. Circuit sided with Grayscale, stating that the SEC's refusal was "arbitrary and capricious." The court highlighted that the SEC had previously approved a futures-based Bitcoin product, thereby setting a precedent that should extend to spot Bitcoin ETFs.
Industry analysts are increasingly optimistic about the approval of spot Bitcoin ETFs. James Seyffart and Eric Balchunas suggest there's a 75% chance of approval this year and a 95% chance by the end of 2024. However, Elliott Z. Stein, a senior litigation analyst at Bloomberg Intelligence, warns that if the SEC shifts to new grounds for denial such as custody issues, it could face further legal challenges.
SEC Chair Gary Gensler must decide whether to adapt to this changing landscape or resist changes, potentially inviting more legal battles. His decision could have far-reaching implications for both the cryptocurrency market and the broader financial ecosystem.
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