On August 29, the US Court of Appeals ruled in favor of Grayscale in its legal battle against the US Securities and Exchange Commission (SEC). Following this, Grayscale’s GBTC shares trading volume significantly increased, climbing to a 2-year high in the process.

According to data from Yahoo Finance, GBTC’s share price had opened at $17.66 on the day and closed at $20.56, rising by almost 17% from the previous day. Furthermore, the fund saw its busiest day in over a year, with over 19 million GBTC shares changing hands. This volume jump marked the fund’s highest in over two years.

These figures aren’t surprising, considering that Grayscale’s victory presents a bullish outlook for the fund. Furthermore, Grayscale’s GBTC is one step closer to being converted into a Spot Bitcoin ETF, so many investors may want to get in on the fund at a discounted price.

GBTC currently operates as a closed-end fund and has seen a discount as high as 48.89% of its net asset value (NAV) in December 2022. This discount has been reduced to about 18% following the court’s ruling in favor of Grayscale. However, some still believe this gap could close further, especially if Grayscale’s ETF application were approved.

Grayscale had filed a lawsuit following the SEC’s refusal to grant its application to convert its GBTC fund into a Spot Bitcoin ETF. 

Grayscale argued that the SEC acted arbitrarily and capriciously by not giving it the same regulatory treatment the Commission did to the Teucrium Bitcoin Futures Fund and the Valkyrie XBTO Bitcoin Futures Fund.

The fund stated that it deserved the same treatment as the Bitcoin futures fund because the prices of both Spot and Futures Bitcoin ETFs were “99.9%” correlated, so they posed the same risk regarding fraud and manipulation. 

The court adopted Grayscale’s argument and agreed that the SEC had not provided sufficient reason for denying Grayscale’s application while approving the Bitcoin futures funds.

With this ruling, the SEC’s primary reason for not approving a Spot Bitcoin no longer carries weight, as the Commission can no longer deny applications solely because the Spot Bitcoin market has no regulated market of significant size. 

The court already found both funds (spot and futures) to be similar, so these exchanges’ surveillance sharing agreements with the Chicago Mercantile Exchange (CME) should be sufficient to deter manipulation in either the spot or futures market. 

While it remains to be seen what step the SEC will take regarding the Court of Appeal’s ruling, there is an increased likelihood that the Commission will have to approve the pending Spot Bitcoin ETF applications except if it can find another reason to deny these proposals.  

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