The Securities and Exchange Commission (SEC) is expected to release an important decision that could potentially lead to the launch of a spot Bitcoin exchange-traded fund (ETF). This decision holds significant implications for the future of the token.
In a recent court battle against Grayscale Investments, the SEC faces a deadline of midnight on Friday to challenge its loss. Grayscale Investments has been working to convert the Grayscale Bitcoin Trust (GBTC) into an ETF for several years.
The current trust manages approximately $16.6 billion in assets but trades like a closed-end fund, with its price often deviating significantly from the actual value of its underlying assets. As of the latest closing, GBTC's price stands at $20.07, which is about 16.5% below the price of the Bitcoin it holds.
Many hedge funds and investors have placed bets on the potential closure of this price gap. If the trust is allowed to convert into an ETF and follow the usual share redemption and creation process that keeps prices aligned, these investors stand to make billions of dollars.
This decision also has broader implications for Bitcoin itself. Prominent firms such as Fidelity, BlackRock, and Invesco have submitted applications to launch their own Bitcoin ETFs. If these funds are approved by the SEC and enter the market, analysts predict billions of dollars could flow into the token as investment advisors and institutions gain a familiar product to invest in.
While it remains uncertain whether the SEC, which has consistently denied previous applications, will finally capitulate, market participants eagerly await their verdict. In a recent hearing, SEC Chair Gary Gensler stated that the agency is still deliberating on the appellate court decision. The SEC did not provide any comments when requested on Thursday.
Grayscale's Bid for Bitcoin ETF Rejected by SEC
In a landmark decision in August, the U.S. Court of Appeals for the D.C. Circuit ruled that the Securities and Exchange Commission (SEC) acted arbitrarily and capriciously when it denied Grayscale's proposal to convert GBTC into an Exchange-Traded Fund (ETF). The SEC's reasoning behind the rejection was based on concerns of insufficient surveillance for fraud and manipulation in Bitcoin-trading platforms. However, Grayscale argued that there was no valid reason to differentiate between spot Bitcoin ETFs and Bitcoin futures-based exchange-traded products, which the SEC had already approved.
The court's ruling initiated a 45-day window for the SEC to request an "en banc" hearing, where all of the appellate court's judges would be present. This window is set to expire at midnight on Friday. Even if the SEC chooses not to seek an en banc hearing, they could still potentially appeal the decision to the Supreme Court.
Should the court's decision be implemented, the SEC's rejection would be voided, and the application would be returned to the agency for further consideration.
It remains uncertain whether the agency would reject Grayscale's bid on other grounds that were not brought up in court. Furthermore, the timeline for such a decision is unclear. Grayscale's attorneys contended in a letter last month that the deadline for any such determination has long passed. Additionally, the conversion of the fund into an ETF would require other aspects of the application to be filed and approved.
A spokesperson for Grayscale stated that the company is ready to convert GBTC into an ETF once it receives approval to do so.
Given the SEC's historical resistance to ETFs, it wouldn't be surprising if they find ways to delay their introduction once again. Nevertheless, this ongoing saga appears to be finally approaching a resolution.