Bitcoin is rallying on new hopes that the SEC will approve a spot-based ETF holding the crypto.
Dreamstime
Bitcoin just got a booster shot, and it’s lifting
Coinbase
Global and other crypto-related stocks.
A federal court on Tuesday said that the Securities and Exchange Commission acted arbitrarily when it denied Grayscale Investments’ attempts to convert its
Grayscale Bitcoin Trust
(ticker: GBTC) into an exchange-traded fund.
While the saga to create the first spot Bitcoin ETF likely isn’t over, the creation of such a fund now looks all but inevitable. Companies from BlackRock (BLK) to Fidelity have been clamoring for a spot Bitcoin ETF, filing applications with the SEC in the hopes that the agency will back off its long-standing objections.
Bitcoin has surged on the news along with
Coinbase Global
(COIN) and other crypto-related stocks. Shares of GBTC were up 19% to $20.89 in morning trading, likely in anticipation of the trust, which trades like a closed-end fund, being able to convert to an ETF. The price of Bitcoin also rose 4.5% to $27,274, while Coinbase rose 14% to $84.25.
“This is a monumental step forward for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper,” a spokeswoman for Grayscale said in a statement.
The decision, issued Tuesday morning in the U.S. Court of Appeals for the D.C. Circuit, is a major win for Grayscale, which manages the largest Bitcoin fund at $16.2 billion in assets. In the decision, the judges said the SEC failed to explain why it approved funds that own Bitcoin futures while also arguing that the market for spot Bitcoin was too vulnerable to manipulation to support an ETF.
GBTC had been trading at a significant discount to the value of the Bitcoin it holds. The fund’s net asset value was $23.41 at the market close on Monday, a roughly 12% premium to its market price on Tuesday. That gap could close further as traders anticipate an ETF approval.
The judges’ decision won’t allow GBTC to convert into an ETF automatically. The federal government can appeal the decision to the Supreme Court or the SEC could attempt to deny the application to convert to an ETF for another reason.
An SEC spokesperson in a statement said the agency is reviewing the court’s decision “to determine next steps.”
Still, the decision makes it an uphill battle for the SEC to keep spot Bitcoin ETFs from coming to market. In addition to Grayscale,
BlackRock,
Fidelity and other companies have also applied to launch a spot Bitcoin ETF.
Several Bitcoin futures ETFs are on the market, but the SEC has repeatedly objected to a spot-based ETF, arguing that the spot market for Bitcoin is too vulnerable to fraud and manipulation, while the futures market has ample surveillance mechanisms.
“This ruling is not just about Grayscale or Bitcoin, it sets a precedent for the broader crypto industry. This is big, positive, and precedent setting news,” said Ji Kim, head of global policy for the Crypto Council for Innovation trade group, in a statement.
The victory for Grayscale comes after the SEC notched a partial loss in another critical crypto case involving Ripple Labs, issuer of the XRP token. The SEC is appealing that decision.
Still, some analysts remain skeptical that a Bitcoin ETF will lift all boats.
“We are less enthused as the launch of a Bitcoin ETF further commoditizes Bitcoin trading in the US (~40% of COIN’s transaction revenue),” Mizuho Securities analyst Dan Dolev wrote in a note Tuesday morning. “In our view, heightened competition in an asset category that is already seeing less retail engagement, will likely drive pricing pressure over time.
He reiterated his Underperform rating on Coinbase and $27 target for the price.
Write to Joe Light at [email protected]
Read the full article here
