US court ruling on Grayscale ETF pushes crypto market up, Bitcoin jumps 5%

Grayscale had appealed against the US SEC's decision to reject its proposal for converting its Bitcoin Trust into a spot ETF

The US District of Columbia Court of Appeals on Tuesday ruled that the US Securities and Exchange Commission (SEC) was wrong to reject an application from crypto asset manager Grayscale Investments to list an exchange-traded fund. This has pushed the crypto market by over 4.2 per cent in the last 24 hours.

According to coinmarketcap.com, the total crypto market cap was up 4.2 per cent to $1.09 trillion in the last 24 hours. During the same period, Bitcoin was up 5.29 per cent and was trading at $27,374.3 on Wednesday.

Ethereum, the second largest crypto token by market cap, was up 4.29 per cent and was at $1,717.

"We can already see the positive impact on the Bitcoin price as it hit a two-week high as soon as the news became public. The market reaction to Grayscale winning the lawsuit against the SEC shows that the digital asset industry is held back due to a lack of regulatory framework," said Shivam Thakral, chief executive officer (CEO) of crypto exchange BuyUcoin.

What was the Grayscale case?

Last year, the US SEC rejected Grayscale's application to convert its spot Grayscale Bitcoin Trust into an ETF, listed on the New York Stock Exchange's Arca market. The trust holds more than $15 billion in Bitcoin.

The SEC had earlier allowed bitcoin futures ETFs. However, it rejected Grayscale's application, stating that spot funds were prone to manipulation as crypto was traded on largely unregulated markets.

Bitcoin futures ETFs track agreements to buy or sell bitcoin at a pre-agreed price. Spot ETFs track these agreements at the current price.

Grayscale later sued the US SEC.

According to Reuters, Grayscale argued that the bitcoin futures ETF surveillance arrangements should also be satisfactory for Grayscale's spot ETF since both products rely on bitcoin's underlying price.

Experts say ETFs would allow investors to gain exposure to Bitcoin without having to own it.

Grayscale ETF case: Judgement and what next

In the judgement, Judge Neomi Rao wrote that the US SEC's denial was "arbitrary and capricious because the commission failed to explain its different treatment of similar products".

Now, the US SEC has 45 days to decide whether to abide by the decision or to appeal against it in the Supreme Court. Grayscale, meanwhile, would have to file a new application for the ETF. However, there is no guarantee that the SEC would still give it a thumbs up.

This would also increase interest in other proposed ETFs. The most closely watched such proposal is from BlackRock, the world's largest asset manager. There are also similar proposals from Invesco, VanEck and WisdomTree. All of them are coming up for preliminary deadlines this week.

"The wave of positive developments around the crypto industry has come as a fresh lease of life for the crypto industry, which has been battling hostile regulations, dampened investor mood, and crypto winter. We are optimistic that Grayscale getting court approval for the Bitcoin ETF will work as a template for similar financial products around the world," Thakral added.