SEC's Non-Appeal Decision Strengthens GBTC's Path to Bitcoin ETF Status

In a significant turn of events, the Securities and Exchange Commission (SEC) has chosen not to challenge a court's rebuke in August over its rejection of Grayscale's endeavor to transform its Bitcoin trust into an ETF. This decision holds the potential to mark the advent of the inaugural Bitcoin Exchange-Traded Fund (ETF) in the United States. Despite the opportunity to contest the court's ruling until midnight on Friday, the SEC has refrained from an appeal, prompting a surge in Bitcoin's value beyond the $27,000 mark.

The D.C. Circuit Court of Appeals' ruling in August categorically stated that the SEC's refusal to permit Grayscale Investment's request for the conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF was unjust and necessitated a comprehensive reevaluation. The court explicitly characterized this denial as "arbitrary and capricious" while underscoring the paramount importance of uniform treatment of analogous cases by federal agencies.

While spokespersons from the SEC are yet to provide official comments regarding the agency's decision, a representative from Grayscale has abstained from issuing a statement until the determination is formally ratified.

The SEC's forthcoming approach in handling Grayscale's application remains shrouded in uncertainty. The agency retains the prerogative to reject the application on grounds distinct from those dismissed by the courts. However, Grayscale may choose to legally contest such grounds in the foreseeable future.

Grayscale initially set forth its ambition to transition its closed-end fund into an ETF in October 2021. The Grayscale Bitcoin Trust (GBTC), the world's most extensive cryptocurrency fund, has been subject to trading at a discount concerning its Bitcoin holdings since February 2021. Although this discount experienced a peak of nearly 50% at one juncture, it has since subsided to approximately 17%.

Grayscale has consistently advocated that the transformation of GBTC into an ETF would nullify this discount by narrowing the chasm between the price and the intrinsic value of Bitcoin. The ETF framework facilitates a creation-redemption model, empowering the generation of new ETF shares to cater to burgeoning demand or their redemption to curtail supply.

Grayscale, an entity operating under the aegis of Digital Currency Group, stands alongside several other contenders in the pursuit of Bitcoin spot ETFs. Industry stalwarts like BlackRock and Fidelity are amongst those awaiting the SEC's nod of approval for their respective ETF applications.

Read more: Regulatory Outlook for Spot Bitcoin ETFs