The Securities and Exchange Commission doesn’t plan to challenge a major court loss against Grayscale Investments, according to a person familiar with the matter, bringing closer the possibility of the first Bitcoin exchange-traded fund.
The agency faced a midnight Friday deadline to ask for a new hearing in its case against Grayscale Investments. In that case, a panel of judges said the SEC acted arbitrarily and capriciously in rejecting the firm’s bid to convert the
Grayscale Bitcoin Trust
(ticker: GBTC) into an ETF.
The SEC had argued that Bitcoin trading platforms had insufficient surveillance to detect fraud and manipulation, but the judges in the U.S. Court of Appeals for the D.C. Circuit agreed with Grayscale that the argument didn’t make sense in light of the agency’s approval of exchange-traded products that hold Bitcoin futures.
The three judges were unanimous in their ruling, but the SEC still had an opportunity to ask for an “en banc” hearing in front of all the appellate court’s judges. The SEC won’t be taking that step, the person said.
Right now, the Grayscale trust trades like a closed-end fund, with a price that deviates significantly from the value of the Bitcoin it holds. At the close on Friday, the trust had a price of $20.24, about 15.9% below the value of its assets. If the trust converts, that discount will likely close.
More than that, the move is perhaps the strongest indication yet that the agency is moving closer to allowing spot Bitcoin ETFs to come to market. Firms including
BlackRock
(BLK), Fidelity Investments, and
Invesco
(IVZ) have filed to launch Bitcoin ETFs.
The SEC could still choose to deny Grayscale’s application for a different reason not addressed by the court. Grayscale and other fund firms also have to get other approvals to bring a product to market.
But Friday’s decision is a crucial signal that Bitcoin ETFs are moving closer to the finish line.
Write to Joe Light at joe.light@barrons.com
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