Grayscale Win Leads to More Questions on Spot Bitcoin ETFs

On Tuesday, Grayscale finally won its lawsuit against the SEC (see initial coverage here). For the past few years, Grayscale has been in an ongoing legal battle with the SEC over converting its Grayscale Bitcoin Trust (GBTC) product into a spot Bitcoin ETF. The SEC has denied its request while approving similar futures-based bitcoin ETFs including leveraged and inverse products.

Grayscale won its lawsuit unanimously. The court declared that the SEC’s treatment of futures versus spot bitcoin products was essentially arbitrary and unfair. The SEC could not adequately explain its rationale for denying spot bitcoin products. While a lot of details are still being hashed out, including the timeline and process for approval, this is certainly a huge milestone for spot bitcoin ETFs. The following questions are the most common questions I’ve received.

Does this mean a spot bitcoin ETF will be approved?

While Grayscale’s lawsuit is a huge victory, it does not guarantee immediate approval of a spot bitcoin ETF. The court did not declare that the SEC must approve Grayscale’s ETF product. The court’s decision states that the SEC’s treatment of spot versus futures bitcoin ETFs was essentially arbitrary and unfair. The SEC did not provide adequate evidence on why they would deny spot bitcoin products versus futures bitcoin products. This means that the SEC would need to review Grayscale’s application of conversion again and consider the court decision in its approval.

There could be some roadblocks (more details below). The most likely scenario is that the SEC will eventually approve Grayscale’s application along with several other filings currently in the pipeline. This isn’t an immediate guarantee of a spot product. But this is big news. Not just for Grayscale, but also for other issuers who have filed for spot bitcoin ETFs and for investors who have been advocating for a spot ETF product.

What could the SEC do next, and what is the possible timeline for approval?

The SEC has 45 days to appeal the decision to a full panel. But it seems unlikely that the decision would be reversed. Why? The initial ruling was unanimous among the three judges. The SEC could also potentially find another reason to deny Grayscale’s application. But this also seems unlikely. That could turn into another long, costly, and negatively viewed legal battle.

While I believe we will see a U.S. spot bitcoin ETF soon, it is difficult to say for sure whether that will happen in 2023. According to a live interview with Grayscale on Bloomberg, there are still a lot of uncertainties including whether Grayscale will need to refile its application. To complicate matters, several deadlines are approaching this week for the SEC’s initial decisions on spot bitcoin ETF filings from issuers like BlackRock, Bitwise, VanEck, WisdomTree, Invesco, and others.