The U.S. Court of Appeals for the District of Columbia Circuit has issued an order requiring the Securities and Exchange Commission to reconsider Grayscale Investments’ application to register a bitcoin exchange-traded fund with the New York Stock Exchange Arca, confirming the SEC’s decision not to appeal the circuit court’s August ruling in Grayscale v. SEC.
In August, the D.C. Circuit held that the SEC’s denial was “arbitrary and capricious because the Commission failed to explain its different treatment of similar products.” The similar products were two bitcoin futures ETFs that were listed, with the SEC’s approval, on the Chicago Mercantile Exchange, one from Teucrium Trading and the other from Valkyrie Funds.
The decision held that the ETF proposed by Grayscale was a very similar product—an ETF in the Bitcoin spot market—to the two previously-approved products—both ETFs in the futures market—and that Grayscale’s ETF had a manipulation surveillance agreement with the CME similar to the one the futures ETFs had. Therefore, the D.C. Circuit held, denying one and approving the others, absent further argument, was “arbitrary and capricious.”
The deadline for the SEC to appeal the August ruling was October 13, and the appeals court advanced a formal order on Monday to comply with the ruling.
The ruling has significant implications for 12 outstanding bitcoin exchange-traded products currently being considered by the SEC, managed by BlackRock, Fidelity Investment and VanEck.
The first deadlines for these ETFs are January 10, 2024, and they will likely be approved together, according to Michael Silberberg, head of investor relations at Alt Tab Capital, a crypto hedge fund: “Consensus is that the SEC is going to approve these.”
Silberberg says the “SEC has continued to not give clarity” on “which digital assets are commodities and which are securities,” a complaint echoed by many supporters of the cryptocurrency industry in Congress.
SEC Chairman Gary Gensler has rejected making a formal rule on the issue, instead saying that current laws are clear enough to take enforcement action. Gensler has indicated, while speaking in public settings, that he believes Bitcoin to be a commodity, not a security, though exchanges regulated by the SEC must still seek approval to list a bitcoin ETF. Specifically, Gensler has said that all cryptocurrencies are securities, except for Bitcoin and possibly Ethereum.
The rise of cryptocurrencies and digital assets, including Bitcoin, has raised still unanswered questions about which federal regulator, the SEC or the Commodity Futures Trading Commission, should be the primary regulator. This case does not address that question.
Silberberg says he expects “small allocations from large institutions into bitcoin.” He argues that digital assets can be highly non-correlative with other assets and can be a useful hedge strategy that “would serve any portfolio.”