US court says SEC wrong to deny Grayscale’s spot bitcoin ETF proposal

By Hannah Lang

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission should have approved an application from Grayscale Investments to create a spot bitcoin exchange-traded fund, a federal appeals court ruled on Tuesday, in a landmark victory for the asset manager that could pave the way for the first product of its kind.

A panel of judges in the District of Columbia Court of Appeals in Washington said the securities regulator was arbitrary and capricious in denying the product because it failed to fully explain its reasoning.

The price of bitcoin, the world’s largest cryptocurrency, was last up 4.71% at $27,333 following the decision.

A spot bitcoin ETF would track its underlying market price, giving investors exposure to the digital asset without the need to buy the currency. The SEC has denied all proposed bitcoin ETFs, including Grayscale’s, saying they do not meet its bar for preventing market manipulation.

In a statement, a Grayscale spokeswoman said the court decision was “a monumental step forward for American investors.”

“The Grayscale team and our legal advisors are actively reviewing the details outlined in the Court’s opinion and will be pursuing next steps with the SEC,” the spokeswoman said.

An SEC spokesperson said the regulator was reviewing the court’s decision in order to determine next steps.

The cryptocurrency industry was quick to hail the ruling. Several other asset managers, including BlackRock, Fidelity and Invesco, have similar filings pending with the SEC for a spot bitcoin ETF.

“This ruling is not just about Grayscale or Bitcoin, it sets a precedent for the broader crypto industry,” said Ji Kim, general counsel and head of global policy at the Crypto Council for Innovation.


The SEC rejected Grayscale’s application for a spot bitcoin ETF in June 2022, arguing the proposal did not meet anti-fraud and investor protection standards. It cited the same reason in its denial of dozens of other applications for similar products, including those from Fidelity and VanEck.

Grayscale had argued that because the SEC previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should also be satisfactory for Grayscale’s spot fund, since both spot and futures funds rely on bitcoin’s price.

The court said in its ruling that the SEC failed to explain why it disagreed with Grayscale’s assertion that the bitcoin spot and futures markets are 99.9% correlated.

“The Commission’s unexplained discounting of the obvious financial and mathematical relationship between the spot and futures markets falls short of the standard for reasoned decisionmaking,” the court said in its opinion, which was filed by Judge Neomi Rao of the District of Columbia Court of Appeals.

The ruling is the second major legal victory for the crypto industry in recent weeks, after a judge ruled in July in a case brought by the SEC that Ripple Labs did not violate federal laws by selling its XRP token on public exchanges. The SEC has said it plans to appeal that finding.

The SEC will have 45 days to appeal Tuesday’s ruling. If it does so, the case would go either to the U.S. Supreme Court or an en banc panel review.

If the SEC chooses not to appeal, the court would issue a mandate specifying how its decision should be executed. That could include instructing the SEC to approve the application, or to revisit Grayscale’s application, in which case the SEC could still reject the proposal on other grounds.

It remains to be seen how the ruling might impact proposals submitted in June by BlackRock, the world’s largest asset manager, and several other firms to offer spot bitcoin ETFs. The SEC has yet to deliver a decision on those applications.

(Reporting by Hannah Lang in Washington; Additional reporting by Chris Prentice in New York; Editing by Paul Simao, Matthew Lewis and Tomasz Janowski)