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October 13, 2023 - In a significant turn of events, the U.S. Securities and Exchange Commission (SEC) has made a decisive choice not to contest a recent judicial decision that deemed the rejection of Grayscale Investments' application for a spot Bitcoin exchange-traded fund (ETF) unfair.
The verdict, issued by the District of Columbia Court of Appeals in Washington in August, concluded that the SEC's denial of Grayscale's proposed Bitcoin ETF was flawed. The SEC's decision not to challenge this ruling could potentially expedite the review process for Grayscale's application.
A spot Bitcoin ETF would provide investors with exposure to the world's largest cryptocurrency by market capitalization without the need for direct ownership. However, the SEC has consistently rejected all proposals for spot Bitcoin ETFs, including Grayscale's, citing inadequate measures by applicants to safeguard investors against market manipulation.
In response, Grayscale argued that the SEC's approval of certain surveillance agreements designed to prevent fraud in Bitcoin futures-based ETFs should be sufficient for their spot ETF.
Grayscale's legal battle centered on the SEC's inconsistent treatment of spot and futures-based Bitcoin ETFs, despite both presenting similar risks and being priced based on the same underlying spot markets. The argument was based on the premise that both spot and futures funds depend on the price of Bitcoin. The appeals court concurred, stating that the SEC failed to clarify the material difference between the two arrangements, thus arbitrarily rejecting Grayscale's application.
The news has been met with enthusiasm in the cryptocurrency community, with the price of Bitcoin (BTC) surging past $27,000 after the announcement.
The SEC's decision not to challenge the court's ruling now opens the door for other asset management firms, including BlackRock, Fidelity, and Invesco, which have similar applications awaiting review by the SEC for a spot Bitcoin ETF. The SEC is expected to make determinations on these applications by the latest next year.
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