What Grayscale’s Win Means for Bitcoin ETFs—And What It Doesn't

A federal judge’s bombshell decision to side with Grayscale's fight for a spot Bitcoin ETF sent shockwaves through the crypto world yesterday. 

At a time when regulators are cracking down on digital asset companies like never before and the crypto market is largely stagnant, optimism has flooded back into the sphere. 

Bitcoin—and Bitcoin-related assets—bolted upwards following news that the U.S. Court of Appeals for the D.C. Circuit had seemingly paved the way for long-awaited spot crypto exchange-traded funds in the States. 

But Tuesday’s decision to overturn the SEC’s decision to block Grayscale from converting its Bitcoin trust into a spot ETF doesn’t mean that a Bitcoin ETF has been approved. 

Not yet, anyway. 

Wall Street’s biggest regulator can still appeal the decision. And some commentators have said this is likely—after all, the SEC has seemed adamant that there’s no safe way to give investors access to a spot Bitcoin ETF.

But other experts have said this is unlikely to happen. Chair of complex litigation at Coffey Modica LLP Joseph A. D’Avanzo told Decrypt: “While the SEC can appeal, it is not likely to do so.” He added that this was because the SEC unlikely had a leg to stand on. 

The “logjam” created by the SEC in the effort to get a Bitcoin ETF approved in the U.S. had now been broken because Grayscale was able to show a near 100% correlation between the Bitcoin spot market and the Chicago Mercantile Exchange futures contract prices. 

“Grayscale has busted open the dam,” he said, “and the flood is coming in behind it.”

A bit of background: The SEC first approved a Bitcoin futures ETF—which allows investors to bet on the future price of crypto— in 2021. But it’s been dragging its feet in approving a spot ETF. 

This is partly because it claims that the spot Bitcoin market can be manipulated. But yesterday’s decision showed the judges weren’t buying it. 

“The Commission failed to adequately explain why it approved the listing of two Bitcoin futures ETPs [exchange-traded products] but not Grayscale’s proposed Bitcoin ETP,” the decision read, adding that was “unlawful.”

Now, the SEC and Grayscale have 45 days to appeal today’s court decision. Though experts are now saying that it is likely a spot ETF will hit Wall Street this year. 

“The chances of the SEC approving spot Bitcoin ETFs this year have risen to 75% from 65% following Grayscale’s win,” Bloomberg Intelligence analyst James Seyffart said on Twitter. 

Dechert LLP partner Timothy Spangler told Decrypt that recent events have been a “positive reinforcement of the fact that it’s not a question of if but when.”

“I think it’s always been a question of, ‘how long will it take our regulators to understand the technology and be comfortable with its operations’ rather than any permanent ban,” he said. “It just takes time.”