The Securities and Exchange Commission (SEC) had rejected every single application for a spot bitcoin exchange-traded fund (ETF) over the years, dashing hopes that mainstream investors could easily gain exposure to the volatile cryptocurrency through regulated investment vehicles. But Grayscale Investments refused to give up the fight.
Through a lengthy court battle, the asset manager finally compelled the reluctant SEC to approve not only the conversion of its bitcoin trust into an ETF, but also a slate of spot bitcoin ETF filings proposed by competitors. On January 10, 2024, SEC Chair Gary Gensler greenlit 11 filings, opening the floodgates to long-awaited crypto ETFs.
In his statement, Gensler cited changed circumstances stemming from Grayscale’s legal victory against the SEC in August 2023. The D.C. Court of Appeals ruled the SEC acted “arbitrarily and capriciously” in denying Grayscale’s spot bitcoin ETF application in 2021.
The scathing court rebuke forced the SEC to reassess its past rejections. Though Gensler voiced lingering concerns over bitcoin’s volatility and ties to illicit finance, he felt compelled to finally approve spot bitcoin ETFs – including major filings from asset managers like BlackRock and Fidelity.
In an apparent reference to the Grayscale case, Gensler said: “I have often said that the Commission acts within the law and how the courts interpret the law.”
With shares of the rebranded Grayscale Bitcoin Trust (GBTC) now approved to trade as a spot ETF on NYSE Arca on January 11, mainstream investors will finally have access to a regulated vehicle for crypto exposure, alongside the other spot Bitcoin ETFs approved on January 10. But they largely have Grayscale’s legal perseverance to thank.
The asset manager’s dogged court battle resulted in a rare order forcing the SEC’s hand to greenlight not only GBTC’s conversion, but also competitors’ spot bitcoin ETFs. Grayscale refused to stand down until the SEC answered the call.
Gensler admitted “circumstances have changed” in light of the Grayscale ruling. He said : “Based on these circumstances and those discussed more fully in the approval order, I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares.”
Although, despite Gensler’s grumbling, it appears that the SEC chair was the deciding vote in a 3-2 ballot of the Commission.
His reluctant approval signals a seismic shift for cryptocurrency’s journey towards mainstream finance. The court decision cornered a long-resistant SEC into opening the floodgates. The road was arduous, but Grayscale and their 10 co-applicants won out.
Yet concerns remain on illegal cryptocurrency activity. Gensler warned investors to “remain cautious about risks” while underscoring the SEC did “not approve or endorse bitcoin” itself in greenlighting associated ETF products from Grayscale, BlackRock and others.
To make his point clear, Gensler highlighted Bitcoin’s links to “illicit activity including ransomware , money laundering, sanction evasion , and terrorist financing .” This could well be a not-so-subtle hint of Gensler’s low opinion of the cryptocurrency.
In many ways the years-long ETF saga mirrored bitcoin’s own fledgling path, from shadowy start to mainstream ambition. Grayscale’s hard-fought court victory ultimately opened the door, but it took years of closed SEC doors and denied applications to get there. However for crypto’s early backers vindication is sweet.