There’s a lot of fear, uncertainty and doubt in the crypto market right now. All risk markets, actually, what with never-ending Fed interest-rate-hiking speculation. But here’s something, at least, to stuff in the crypto hopium pipe.

A long-coveted Bitcoin spot exchange traded fund (ETF) might have half a chance of getting a reluctant SEC nod this year, thanks to crypto investment and asset-management firm Grayscale’s lawsuit against the regulator.

We say might, because, there’s no way US Securities and Exchange Commission boss Gary Gensler is going down without a strong fight on that one.

He’s been clearly opposed to the idea of a spot BTC ETF for quite some time now and has been leading a regulatory warpath against sections of the crypto market of late. (Both Paxos and Kraken have felt the SEC’s heavy hand just recently, not to mention the ongoing legal stoush between the regulator and Ripple Labs regarding XRP’s status as a security or otherwise.)

Some tend to think he’s playing tough-cop catch-up now after the SEC, which is meant to be America’s great financial consumer protector, effectively saw the Terra Luna and FTX implosion debacles play out in front of its nose last year.

But here’s the thing – reports have been circulating that judges presiding over the Grayscale lawsuit levelled at the SEC have been heavily scrutinising the SEC’s actions and might well be leaning towards Grayscale’s view of unfair treatment.


While the SEC has approved the operation of Bitcoin futures ETFs in the past, it’s Grayscale’s view that the regulator has acted “arbitrarily and capriciously” in violation of the Administrative Procedure Act when it comes to its denials of spot BTC/crypto ETFs.

Grayscale first submitted an application to convert its GBTC (Grayscale Bitcoin Trust) investment product into an ETF in 2016. According to the company’s website, it holds more than $14 billion worth of assets in the product.


Why is a spot Bitcoin ETF regarded as important?

One of the big crypto market narratives last year was “Wen ETF?” Crypto investors have been coveting the SEC approval of a spot Bitcoin ETF so that trad-finance-minded people can easily, on the stock market or through brokers, invest into BTC.

It’s seen as important because the speculation is it would likely spur a mass-liquidity injection of funds into the crypto ecosystem via Bitcoin. And it’s different from futures ETFs in that a spot-based product requires the actual buying and holding of the BTC asset, which would, in theory, move the price upwards.

Also in theory, one spot BTC ETF approval would clear the path for several other dormant applications to be given the begrudging SEC go-ahead. That said, the crypto industry likely won’t be underestimating Gensler’s ability to steer the narrative in the direction he favours.

But according to CoinDesk (which we should note is a media outlet owned by Digital Currency Group, which also owns Grayscale), a panel of judges on the D.C. Circuit Court of Appeals in Washington, D.C., “seemed to agree with Grayscale’s argument”.

And per a Decrypt report, too: “Judge Neomi Rao said it seems the futures price of Bitcoin is a derivative of the asset’s spot price which move together 99.9% of the time. She said the SEC has not provided evidence that Grayscale’s claims are wrong.”

“It seems like there’s quite a bit of information on how these markets work together,” said the judge, adding: “the Commission really needs to explain … how it understands the relationship between Bitcoin futures and the spot price of Bitcoin.”

There are a few possible outcomes if a federal court rules in Grayscale’s favour said Craig Salm, Grayscale’s chief legal officer in conversation on CoinDesk‘s First Mover program.

“The commission could approve GBTC as a spot bitcoin ETF” as well as approve those spot ETFs from other companies that have been similarly rejected by the SEC.

“We think that’s really the right position,” said Salm, adding:

“I think now we’re seeing … crypto is here to stay. Bitcoin is here to stay and we’re not going to be able to ban it. Conversely, what can we do to further regulate and protect US investors and consumers? Spot Bitcoin ETFs are one very key way to do that.

“If we’re going to have bitcoin futures trading being approved by the SEC, how can we not also have spot bitcoin ETFs be approved as well?”