In a significant development, the U.S. Court of Appeals for the D.C. Circuit has issued a formal mandate reiterating its August ruling, directing the Securities and Exchange Commission (SEC) to reconsider Grayscale Investments’ bid to convert its flagship GBTC fund into a spot bitcoin exchange-traded fund (ETF). This procedural move comes in the wake of the SEC’s recent announcement that it does not intend to appeal the court’s decision.
SEC faces the task of reevaluation
Following the Court of Appeals’ mandate, the SEC now finds itself at a crossroads, tasked with reevaluating Grayscale’s application for a spot bitcoin ETF. While Grayscale swiftly submitted a fresh filing for the fund, it remains uncertain if the SEC may attempt to reject the application on other grounds.
The Court of Appeals’ August ruling centered on the SEC’s treatment of spot bitcoin ETFs versus bitcoin futures ETFs. The court asserted that Grayscale’s proposed bitcoin ETF closely resembled already approved bitcoin futures ETFs, suggesting that it should have “the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin and bitcoin futures.”
Grayscale, determined to move forward with its plans, wasted no time in taking action. On Thursday, the investment firm submitted a new registration statement through an S-3 filing, a streamlined version of the typical S-1 filing used to offer new shares to investors. If approved, GBTC intends to list the shares on NYSE Arca under the symbol GBTC.
The final go-ahead for the fund’s launch hinges on the approval of its S-3 form and a separate 19b-4 filing from NYSE Arca. This process reflects the rigorous regulatory framework that governs the launch of exchange-traded products.
Competing Titans in the arena
Grayscale is not alone in its quest for a spot bitcoin ETF. Other major asset management giants, including BlackRock and Fidelity, have also sought approval for similar offerings from the SEC. Chair of the SEC, Gary Gensler, acknowledged the agency’s ongoing work in this arena. He noted that the SEC’s staff was actively evaluating multiple filings, estimating the count to be “eight or ten.”
Gensler emphasized that the process for ETF approval mirrors that of taking a company public, like an initial public offering (IPO). The Division of Corporation Finance at the SEC provides critical feedback during this evaluation process. Additionally, the Division of Trading and Markets closely scrutinizes the filings, ensuring a comprehensive review. This methodical approach, grounded in decades of regulatory practice, ensures the highest standards of investor protection.
While addressing questions from reporters, Gensler refrained from commenting specifically on Grayscale but emphasized the thoroughness of the SEC’s assessment of all ETF filings. “This is a time-tested process,” he stated, highlighting the Disclosure Review Team’s role in providing feedback to potential issuers.