Bitcoin up more than 7% as court in crypto ETF case allies with Grayscale in SEC case

The price of Bitcoin surged Tuesday after the US Circuit Court of Appeals ruled that the Securities and Exchange Commission wrongly denied permission for crypto investment giant Grayscale to convert its popular Bitcoin trust into an ETF.

Bitcoin surged about 7% to $27,911.67 following the ruling, according to Coin Metrics. The move sent cryptocurrencies broadly higher, as did crypto stocks.

Grayscale's lawsuit against the SEC was closely watched by investors and other industry participants as it was a key catalyst that would shake up a market characterized by low volatility and low liquidity. Earlier this month, bitcoin trading volatility fell to its lowest level in more than four years as investors waited for more regulatory clarity on crypto activity — whether it be through new legislation from Congress or the possibility of a spot bitcoin to launch ETFs.

Several bitcoin futures ETFs have already been approved in the US

“The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale's proposed bitcoin ETP,” the court said in the decision. “In the absence of a coherent explanation, this unequal regulatory treatment of like products is unlawful. We therefore grant Grayscale's request for review and overturn the Commission's order.”

Many are hoping Tuesday's ruling will increase the chances that the SEC will approve more bitcoin ETF filings — including those from BlackRock, whose filing in late June led to one of the big bitcoin rallies this year, as well as Fidelity, WisdomTree, VanEck and Invesco and others. A US bitcoin ETF would provide a way to gain exposure to bitcoin without having to hold it, which would attract retail and institutional investors and money managers to the market.

The ruling also comes as a relief to many crypto market participants who have been frustrated by the SEC, particularly under Chairman Gary Gensler, and its insistence on regulation through enforcement. The crypto industry has long sought clarity about the rules that companies can follow to create and build long-lasting, compliant businesses. The US government crackdown on crypto in 2023 – including SEC enforcement actions and a lawsuit against the largest US crypto exchange – Coinbasewas a dark cloud over the market.

Grayscale filed its lawsuit against the SEC in June 2022 after the agency denied its request to convert its Bitcoin Trust, better known by its ticker symbol GBTC, into an ETF. After the SEC approved ProShares futures-based Bitcoin ETF in October 2021, the company opted for the ETF that would be backed by Bitcoin rather than Bitcoin derivatives.

The ruling was delayed multiple times, but the SEC eventually denied the request last summer, arguing that Grayscale failed to answer questions related to concerns about market manipulation and investor protection.

The Grayscale Bitcoin Trust itself increased by 17%.