A federal appeals court ruled Tuesday that the Securities and Exchange Commission must reconsider crypto asset manager Grayscale Investments’ application to launch the first bitcoin exchange-traded fund, the latest setback for the SEC Chairman Gary Gensler’s efforts to regulate the emerging industry.
Bitcoin-related assets surged on the news, which traders bet would pave the way for widespread investor adoption of bitcoin-backed ETFs rather than futures.
Coinbase Global, the largest publicly traded crypto exchange, rose 14% and bitcoin futures rose 6%.
“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” Circuit Judge Neomi Rao wrote for the court, noting that the SEC has approved futures ETFs of bitcoins. The ruling was unanimous in a panel of three judges, two of whom were appointed by Democrats.
The decision by the US Court of Appeals for the DC Circuit marks the latest legal setback for Gensler’s approach to regulating crypto markets. The agency had denied Grayscale’s request to convert its bitcoin trust, known as GBTC, into an ETF on the grounds that bitcoin spot markets are unregulated and subject to market manipulation.
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