The U.S. federal appeals court has signaled to the U.S. Securities and Exchange Commission (SEC) to reconsider its previous decision regarding Grayscale Investments’ proposal to transition the Grayscale Bitcoin Trust (GBTC) into an Exchange-Traded Fund (ETF).
According to experts, this development may alter how the broader public views Bitcoin, the largest cryptocurrency by market capitalization, as an investment instrument. Subsequently, Bitcoin (BTC) saw a growth rate of more than 7%, touching $28,000 briefly. At the time of writing, per CoinMarketCap data, Bitcoin was valued at $27,620.
A call for consistent regulation
Judge Neomi Rao of the D.C. Circuit Court of Appeals highlighted the need for a unified regulatory approach. She drew attention to the SEC’s varied decisions, including approving certain bitcoin futures while neglecting Grayscale’s initiative. Rao termed the SEC’s actions toward Grayscale as potentially inconsistent.
Michael Sonnenshein, Grayscale’s CEO, expressed on X (previously known as Twitter) that the company’s legal team is diligently assessing the court’s opinion.
🚨 JUST IN 🚨
The D.C. Circuit ruled in favor of @Grayscale in our lawsuit challenging the SEC's decision to deny $GBTC's conversion to an ETF!
Thank you to everyone who has been on this journey with us, especially our investors. We are grateful for your support and…
— Sonnenshein (@Sonnenshein) August 29, 2023
Key points from the ruling revolved around the clear association between Bitcoin and its futures and their collaborative agreements with the Chicago Mercantile Exchange (CME) to track any questionable market activities. Nevertheless, the court’s direction isn’t an endorsement but a push for a more transparent, detailed reassessment by the SEC.
Market responses indicate regulatory impact
Bitcoin’s price adjustment post-ruling showcases how the market reacts to regulatory modifications. GBTC, since early 2021, has exhibited a consistent undervaluation compared to its foundational asset.
Yet, with established entities submitting spot Bitcoin ETF applications, the gap might begin to close. Analysts posit that a successful ETF transition for Grayscale might correlate its price more closely with its inherent market value.
Subsequent shifts could see shares registered under the Securities Act of 1933 deviating from the original path set for accredited investors. Additionally, shares might transition from over-the-counter mechanisms to NYSE Arca.
The court’s direction might also be a benchmark for future U.S. spot bitcoin ETF endeavors. Beyond Grayscale, entities like BlackRock and Fidelity have shown inclinations in the Bitcoin ETF space.
Trading dynamics underscore the market sentiment
GBTC witnessed increased trading activity post-announcement, reminiscent of patterns observed after the crypto drop in June 2022. Specifically, close to 20 million GBTC shares exchanged hands, resulting in an 18% surge in share prices, touching the vicinity of $21. A similar rise was last noticed when Bitcoin was in the $31,000 bracket in the preceding year.
Moreover, with assets exceeding $17 billion in BTC, the Grayscale Bitcoin Trust contemplates transitioning into a more accessible ETF. Such a shift might equalize the fund’s market share price with the actual BTC value. The price gap between GBTC and Bitcoin also shifted, reducing the difference to 17%.
Historically, during crypto’s bullish stints, GBTC shares typically exceeded Bitcoin’s net asset value. However, 2022 presented hurdles, emphasizing declining crypto valuations. Given the court’s decision, some investors are reallocating, while others, optimistic about future opportunities, are marking their entry.
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