Court Rules In Favor Of Grayscale Against SEC In Spot Bitcoin ETF Case

A three-judge panel of the District of Columbia Circuit handed Grayscale a major victory against the United States SEC in a lawsuit over the conversion of Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Earlier, the financial regulator rejected the GBTC application, saying the product was not designed to prevent manipulative and fraudulent acts and practices.

According to an August 29 court filing, Judge Neomi Rao granted Greyscale’s request for review. The court also vacated the SEC’s request to deny the GBTC listing. Previously, Judge Rao stated that the regulator did not explain why the Grayscale was wrong. However, the decision does not promise the final listing of Grayscale Spot Bitcoin ETF.

The judge said:

“We Agree. The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.”

In June 2022, Grayscale sued the SEC after the regulator blocked it from converting GBTC into an ETF. Grayscale called the rejection “arbitrary and capricious.”

Grayscale’s CEO, Michael Sonnenshin, said on X that its legal team is “actively reviewing” the court’s decision.

🚨 JUST IN 🚨

The D.C. Circuit ruled in favor of @Grayscale in our lawsuit challenging the SEC's decision to deny $GBTC's conversion to an ETF!

Thank you to everyone who has been on this journey with us, especially our investors. We are grateful for your support and…

— Sonnenshein (@Sonnenshein) August 29, 2023

SEC Appeal Of Judgment

The US SEC has about 45 days to appeal the decision. If they appeal, the case will ultimately end up before the Supreme Court or an en banc panel for review.

According to Bloomberg ETF analyst James Seyffart, an en banc review means the case is heard by all judges on the court (17 here).

As far as appeals go, the SEC has 45 days to file for an en banc hearing.

En banc basically means the case is heard by ALL judges on the court (17 here) rather than just the subset panel of 3 judges like this initial decision. https://t.co/R9SIE4mcDz

— James Seyffart (@JSeyff) August 29, 2023

Tim Bevan, CEO of ETC Group, said that despite the regulator’s inevitable appeal, there is no doubt that spot BTC ETFs are coming to the United States. The SEC won’t have the final say. Applications meeting the criteria will probably be approved, possibly in the Q1 of next year, he added.

Interestingly, John Deaton, a lawyer known for supporting Ripple (XRP), predicted the company’s victory in the lawsuit against the SEC. On March 1, Deaton said the financial regulator lost four of its five previous cases before the Supreme Court.

The price of BTC rose sharply on Aug. 29, hitting a daily high of $27,765 before returning to $27,350. The GBTC price also increased by as much as 18% after the court’s order.