What Happens If the SEC Doesn't Appeal Grayscale Bitcoin ETF Ruling?

After 45 days, the Securities and Exchange Commission has mere hours remaining before a recent court decision in favor of Grayscale becomes final at midnight. So far, the SEC hasn’t said a word about it.

On August 29, a federal court ruled that the SEC was being “arbitrary and capricious” in rejecting Grayscale’s bid to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF, while approving similar futures Bitcoin ETFs.

On Friday, Bloomberg ETF analyst Eric Balcunas predicted that the SEC won’t appeal the decision—though he pointed out there’s still time. He didn't immediately respond to a request for comment from Decrypt.

The application to convert the GBTC to a spot Bitcoin ETF won’t automatically be approved if the SEC takes no action before midnight. Instead, the court will likely follow up with a mandate regarding how to respond to its ruling. For the SEC, that could mean revisiting the application and finding different justifications for its denial or simply approving Grayscale’s application.

As the deadline approached, GBTC shares were changing hands at $20.24, up a modest 1% in the past 24 hours. Approximately 2.2 million shares have moved in the past 24 hours—which is nothing compared to the almost 20 million shares that were traded the same day a judge handed Grayscale its court victory.

When markets closed on October 12, Grayscale held $24.00 worth of Bitcoin (BTC) per GBTC share, according to the firm’s website. On Friday, GBTC shares traded for $20.24 apiece, indicating a share discount of roughly 15%.

The discount is the difference between the total market value of all outstanding GBTC shares, and the net asset value of all Bitcoin held by Grayscale.

As a spot Bitcoin ETF, shares of GBTC would be directly redeemable for the BTC held by Grayscale. Therefore, approving its conversion would immediately bring Grayscale’s share value up to parity with the value of its Bitcoin, creating a significant windfall for investors.

The SEC has for years rejected every spot Bitcoin ETF application to arrive on its doorstep. As doubts about Grayscale’s odds of successful conversion took hold, its share discount drifted as low as 48% in December 2022.

The GBTC discount narrowed after investment giant Blackrock filed to list an equivalent product in June, given the asset manager’s near-perfect success streak with the SEC. It shrank again after Grayscale’s SEC lawsuit proved successful.

The SEC also lost on most fronts in its lawsuit against Ripple, after Judge Analisa Torres ruled in July that XRP transactions on crypto exchanges are not securities transactions. Last week, the judge rejected the agency’s attempt at appeal.

Grayscale is also attempting to convert its Ethereum Trust into a spot Ethereum ETF after the SEC approved the first futures Ethereum ETFs earlier this month.