Grayscale wins SEC lawsuit for Bitcoin ETF review.

Crypto asset manager Grayscale Investments has won its legal battle with the Securities and Exchange Commission (SEC) over its application to Grayscale Bitcoin Trust (GBTC). The U.S. Court of Appeals handed down an important ruling that ordered the SEC to review Grayscale’s application for a listed Bitcoin exchange-traded fund (ETF), stating that the SEC’s previous rejection was “arbitrary and capricious.”

The SEC denied Grayscale application to convert its GBTC into a spot ETF on June 29, 2022, citing concerns about the products’ inadequacy in preventing fraudulent and manipulative activities. In response, Grayscale filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit, led by their senior legal strategist, former U.S. Solicitor General Donald B. Verrilli Jr.

In the court filings on August 29, Circuit Judge Neomi Rao granted Grayscale’s petition for review and vacated the SEC’s order to deny the GBTC listing application. Judge Rao had previously criticized the SEC for failing to provide a sufficient explanation for rejecting Grayscale’s application.

While this court ruling marks a significant win for Grayscale, it does not guarantee the eventual listing of a Grayscale spot Bitcoin ETF. Grayscale CEO Michael Sonnenshein stated that their legal team is actively reviewing the court’s opinion.

The Grayscale Bitcoin Trust is currently the largest Bitcoin fund traded over the counter, with assets under management totaling over $14 billion. Earlier this year, the trust’s shares traded at a discount of nearly 50% to its net asset value due to ongoing litigation with the SEC and concerns about its parent company, Digital Currency Group (DCG).

Grayscale faced additional challenges when it terminated material agreements with its partner and digital currency broker Genesis Global in October 2022. Subsequently, Genesis Global suspended withdrawals in November 2022, citing market turmoil following the collapse of the cryptocurrency exchange FTX. Furthermore, Grayscale was impacted by the collapse of Singaporean crypto hedge fund Three Arrows Capital, which left a $1.2 billion debt owed to Genesis unpaid.

As of January 2023, DCG reportedly owes creditors over $3 billion and is considering selling its $500 million venture capital portfolio. Genesis Global alone owes $900 million to Gemini cryptocurrency exchange’s Earn program users.

Grayscale’s legal victory and the potential future listing of a Bitcoin ETF could have significant implications for the broader cryptocurrency market and investor access to digital assets. The decision is expected to attract widespread attention and anticipation as the SEC reviews Grayscale application in light of the court’s ruling.