U.S. Court of Appeals for the Washington, D.C. Circuit its opinion exist Grayscale v. SEC on Tuesday, ruling It was unreasonable for the agency to deny the crypto giant permission to launch a bitcoin ETF.

Last October, the U.S. Securities and Exchange Commission (SEC) rejected the latest offer from crypto giant Grayscale to launch a bitcoin ETF, a ruling that opened the door for a flood of new capital to flow into the crypto market.

The court’s ruling addressed the inconsistency between past SEC-approved applications for bitcoin futures ETFs and applications for regular ETPs or exchange-traded products sought by Grayscale.

“The Commission failed to reasonably explain why it approved the listing of two Bitcoin futures ETPs
But not the similar Bitcoin ETP proposed by Grayscale. Absent such an explanation, the inconsistent treatment of like products is arbitrary and capricious,” Circuit Judge Neomi Rao wrote.

While retail consumers and hedge funds have been investing in bitcoin for more than a decade, pension funds and other large players have largely stayed on the sidelines, in part because corporate charters limit what they can invest on behalf of their clients.

Bitcoin wrapped in the familiar financial wrapper of an ETF is widely expected to dispel legal and reputational concerns among conservative investors and lead to a surge in liquidity in the cryptocurrency market.

The lawsuit began last October when Grayscale filed suit against the agency after rejecting the firm’s application to launch a bitcoin ETF recently. Grayscale’s claims center on the different treatment of ETFs wrapping bitcoin futures contracts (which the agency has allowed since 2021) and ETFs targeting spot market bitcoin (which the agency has repeatedly denied).

At a hearing in March, Grayscale argued that the SEC’s grounds for rejecting its application — that the underlying bitcoin market was at risk of manipulation — were unreasonable because the same concerns could apply to futures markets as well. .

The ruling does not mean the SEC must immediately enforce the ruling. While it can appeal the decision, it also faces bitcoin ETF applications from traditional financial firms such as BlackRock and Fidelity, making it more likely that the agency will simply accept the court ruling and approve the application in the coming weeks .

This story will be updated with more details shortly.

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