Earlier this year, Grayscale Investments LLC achieved a significant legal victory in federal court, as it moved forward with its plan to convert its Grayscale Bitcoin Trust (ticker GBTC) into the first US exchange-traded fund (ETF) that directly invests in the largest digital currency. With the Securities and Exchange Commission (SEC) facing a deadline last Friday to appeal the ruling, a person familiar with the matter, who requested anonymity, stated that the agency does not have any plans for further appeals in the ongoing case.
According to James Seyffart, an analyst at Bloomberg Intelligence, it is likely that a dialogue will now open up between Grayscale and the SEC. “We’ll get more information next week and then we’ll know what happens next,” he said. Seyffart also mentioned that the regulator has the option to file an appeal with the Supreme Court, but he considers this scenario highly unlikely.
The SEC did not respond to a request for comment regarding its plans to spot Bitcoin ETFs.
Grayscale has contended that the conversion of GBTC into an ETF could unlock significant value for its investors. The court’s ruling was deemed groundbreaking for the industry, generating excitement within the digital asset community, as it signaled the potential approval of a Bitcoin ETF in the US after a decade-long battle. In the past, the SEC had been hesitant to grant such approval. Currently, several companies, including BlackRock Inc. and Invesco, among others, are striving to launch similar products.
Following the Grayscale ruling in August, GBTC shares experienced a significant rally, outperforming Bitcoin itself, as the discount of the trust to its underlying holdings notably narrowed. Data compiled by Bloomberg shows that the discount, which had previously exceeded 45% earlier this year, has now reduced to below 20%. Notably, prominent investors such as Cathie Wood and Boaz Weinstein appeared to have opportunistically acquired GBTC shares during its period of distress.
The progress made in the Grayscale conversion brings additional clarity to the ETF approval process, which has remained uncertain for industry observers who were unsure about how the SEC would handle the asset manager’s proceedings, as well as the numerous other pending applications. One crucial question that remains is whether the regulator will allow multiple Bitcoin ETFs to launch simultaneously.
Analysts at Bloomberg Intelligence argue that a recent update to an application from ARK and 21Shares indicates a “constructive conversation” with regulators, typically occurring when an ETF is on its way to approval. They estimate a 90% chance of SEC approval by around January 10th.