Grayscale Investments, the largest digital asset manager in the world, has been seeking to convert its Bitcoin (BTC) trust into a spot Bitcoin exchange-traded fund (ETF) for over a year. However, the U.S. Securities and Exchange Commission (SEC) has repeatedly denied its application, citing concerns over market manipulation, investor protection, and regulatory compliance.
In response, Grayscale sued the SEC in June 2022, alleging that the agency was acting arbitrarily and capriciously by failing to apply consistent treatment to similar investment vehicles. Grayscale argued that the SEC had approved several Bitcoin futures-backed ETFs, which are more risky and costly than spot ETFs, while rejecting Grayscale’s proposal, which would offer investors direct exposure to Bitcoin at a lower fee.
Grayscale also claimed that the SEC was violating the Administrative Procedure Act, the Investment Company Act of 1940, and the First Amendment by imposing unreasonable and unlawful burdens on Grayscale and its investors. Grayscale requested the court to declare that its Bitcoin trust is eligible for conversion into a spot ETF and to order the SEC to approve its application.
A possible verdict this week
According to some industry pundits, Grayscale could be getting a decision on its lawsuit against the SEC before the week’s end. Scott Johnsson, a general partner of Van Buren Capital, explained in a Twitter thread that law clerks in the U.S. District Courts generally cycle out in August, pushing judges to clear out the caseload “before the new guard arrives.”
He noted that 30 out of 32 cases in March of 2021 and 2022 were heard by U.S. District Courts within 160 days of oral testimony, which also landed them in August. He added that it has also been 160 days since Grayscale delivered its oral arguments in its suit against the SEC on March 7, 2023.
Johnsson said that as of now, including Grayscale, there are only a small number of unresolved March-argued cases that remain. He also said that Seyffart’s prediction is a “pretty decently good bet.”
Meanwhile, Bloomberg analyst James Seyffart said that the decision could even come as early as Aug. 15, noting that the date has been his “theoretical Grayscale lawsuit decision date” for some time. He said that he did not do detailed analysis on the court decisions like Johnsson did, but he did have conversations with other experts about timelines.
The implications of a spot Bitcoin ETF
A spot Bitcoin ETF would allow investors to buy and sell shares of a fund that holds Bitcoin directly, without having to deal with the complexities and risks of custody, security, and taxation. It would also provide more liquidity, transparency, and efficiency to the Bitcoin market, as well as attract more institutional and retail investors.
Many industry commentators, including ARK Invest’s Cathie Wood and ETF analyst Nate Geraci, have expressed their confidence that Grayscale will win the lawsuit and pave the way for a spot Bitcoin ETF. Geraci said in a tweet that he thinks Grayscale will win the lawsuit and that the combination of Grayscale’s lawsuit win and Coinbase’s self-custody approval is enough for SEC approval. He added that he thinks we are getting a spot Bitcoin ETF soon.
Grayscale recently voiced that the SEC should approve all Bitcoin spot ETF applications simultaneously to prevent firms from having an advantage over other applicants. Grayscale also said that it is committed to converting its Bitcoin trust into a spot ETF as soon as possible and that it will continue to work with regulators and stakeholders to achieve this goal.