Bitcoin Surges as US Court Overturns SEC's Rejection of ...

Bitcoin Surges as US Court Overturns SEC's Rejection of Grayscale's ETF Application

Bitcoin experienced a surge, reaching a two-week high on Tuesday, following a significant ruling by a US court. The court found that the US Securities and Exchange Commission (SEC) had erred in denying Grayscale Investments' application to establish a spot bitcoin exchange-traded fund (ETF). This verdict marks a momentous victory for the asset management company.

The cryptocurrency was last seen trading almost 7% higher at $27,910.

A panel of judges in the District of Columbia Court of Appeals in Washington declared that the SEC's refusal of Grayscale's proposal lacked justification and was arbitrary. This ruling stemmed from the SEC's inconsistency in treating bitcoin futures ETFs and spot bitcoin ETFs differently.

Details on Grayscale's Case

In the previous year, the SEC rejected Grayscale's bid to transform its Grayscale Bitcoin Trust into an ETF.

While the SEC has turned down proposals for spot bitcoin ETFs, it has approved ETFs tied to bitcoin futures, which mirror agreements to buy or sell bitcoin at predetermined prices.

Grayscale suggested implementing the same safeguards against manipulation that were endorsed for futures ETFs. However, the SEC contended that this did not meet its criteria.

Grayscale was one of several asset managers, including prominent names like Cathie Wood's ARK, Fidelity, and Invesco, whose spot bitcoin ETF applications were denied by the SEC on grounds of investor protection.

In contrast to the other companies, Grayscale chose to take legal action against the SEC. Since the defendant was a regulatory body, the case was directly escalated to the appeals court.

Grayscale's Legal Argument

Grayscale's argument rested on the premise that the surveillance measures for bitcoin futures ETFs would also be suitable for their spot ETF, as both products depend on the underlying price of bitcoin.

Bitcoin futures ETFs track futures traded on the Chicago Mercantile Exchange (CME), a primary platform for such products.

The SEC pointed out that the CME actively monitors "futures market conditions and price movements in real time" to detect and prevent distortions, including those caused by manipulation.

Donald Verrilli Jr., lead counsel for Grayscale, highlighted in March that a spot bitcoin ETF would enhance investor protection, as it would enable them to benefit from CME oversight of the market. Presently, most Americans invest in bitcoin through less regulated or even unregulated exchanges.

However, the SEC maintained that Grayscale lacked sufficient data to ascertain whether the surveillance agreement for CME futures could also identify potential manipulation in the spot markets.

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