SEC Opts Against Appeal in Grayscale Case, Enhancing Prospects for GBTC as Bitcoin ETF

The Securities and Exchange Commission (SEC) has decided not to appeal a court's critical reversal of its refusal to allow Grayscale to convert its bitcoin trust into a more investor-friendly exchange-traded fund (ETF), potentially paving the way for the first bitcoin ETF in the U.S.

The SEC had until midnight Friday to contest the court's ruling, but it will allow the deadline to pass without an appeal, as reported earlier by Reuters. Bitcoin (BTC) surged above $27,000 following this development.

In August, the D.C. Circuit Court of Appeals deemed the SEC's rejection of Grayscale Investment's application for the conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF as invalid, citing it as an "arbitrary and capricious" dismissal and emphasizing the requirement for federal agencies to treat similar cases equally.

SEC representatives have not immediately responded to a request for confirmation of the agency's decision, while a Grayscale spokesperson refrained from commenting until the decision is confirmed. The SEC's future course of action regarding Grayscale's application remains uncertain.

While the agency retains the authority to reject the application on other grounds, Grayscale could potentially challenge such decisions in court. Grayscale initially sought to convert its closed-end fund into an ETF in October 2021.

GBTC, the world's largest cryptocurrency fund, has been trading at a discount to its bitcoin holdings since February 2021, although this discount has since decreased to approximately 17% from a peak of nearly 50%.

Grayscale has consistently advocated for the conversion of GBTC to an ETF, suggesting that it would eliminate the discount by narrowing the gap between the price and the underlying bitcoin. The ETF structure allows for a creation-redemption model, enabling the issuance of new ETF shares to meet demand or the redemption of shares to decrease supply.