Court rules SEC should have approved Grayscale's Bitcoin ETF

The Securities and Exchange Commission should have approved cryptocurrency asset manager Grayscale’s application for a spot bitcoin exchange-traded fund (ETF), a US appeals court ruled on Tuesday.

The landmark decision in favour of Grayscale rejects the SEC’s previous denial of the proposal and could pave the way for the first spot bitcoin ETF in the country.

A panel of federal judges in Washington said the securities regulator acted “arbitrarily and capriciously” in blocking the spot bitcoin fund while approving several bitcoin futures ETFs.

The court said the SEC failed to sufficiently explain its rationale for treating spot bitcoin products differently than futures-based funds, despite Grayscale proposing similar protections against manipulation.

As a result of the ruling, the SEC will likely be forced to reconsider Grayscale’s application specifically and its criteria for spot bitcoin ETFs more broadly. The decision marks a major victory for crypto investors seeking regulated access to digital asset exposure.

The price of Bitcoin jumped 4% to over $27,000 following the long-awaited court verdict.

The outcome carries far-reaching implications for both the SEC and the nascent crypto asset management industry. Several other asset managers like Fidelity and BlackRock have spot bitcoin ETF applications pending before the regulator.

While the SEC retains the discretion to block any individual proposal, the court’s rebuke means its stringent standards for spot bitcoin products face closer scrutiny and potential legal challenges going forward.

Tuesday’s ruling significantly shifts the balance in the ongoing tussle around crypto regulation and oversight. The SEC’s concerns over market manipulation were firmly overridden in favour of greater access and transparency via regulated funds.