Grayscale’s Bitcoin Win Is Still Only Half the Battle

News that a Washington DC Court of Appeals ruled in favor of Grayscale Investments LLC over the Securities and Exchange Commission has ignited hope that a Bitcoin exchange-traded fund will soon be available. Bitcoin prices jumped.

Crypto fans are using terms like “watershed,” “turning point” and “Rubicon” for the Grayscale v SEC ruling. That’s not unjustified since it could lead to the SEC throwing in the towel and unlocking a virtuous spiral upward in crypto prices and legal acceptability. But it’s also very far from certain as the direct practical effect of this decision is infinitesimal.

The game began near the end of 2017 when the Commodity Futures Trading Commission used its authority to allow the Chicago Mercantile Exchange to begin trading of Bitcoin futures. It took over five years for the SEC to approve the first Bitcoin futures ETF — it was difficult for the agency to allow futures ETFs for stocks, bonds and commodities, but not crypto assets. Grayscale then argued its proposal for a spot Bitcoin ETF was so similar to the already-approved Bitcoin futures ETFs that the SEC was arbitrary and capricious to deny its application. The court agreed.

This by no means clears the way for a spot Bitcoin ETF. The SEC could appeal the decision. It could also accept the decision but deny the Grayscale application for other reasons. Importantly, the battlefront has shifted and from here on the SEC is in a defensive position. I expect the SEC to concentrate on setting the terms of the peace treaty to end the fight rather than trying to hold the line against exchange-traded crypto funds. (Disclosure: I am an active crypto investor, and have venture capital investments and advisory relations with crypto companies.)