After Grayscale Victory, SEC Kicks the Can on Latest Bitcoin ETF Applications

The U.S. Securities and Exchange Commission (SEC) delayed making a decision on spot bitcoin exchange-traded fund (ETF) applications filed by WisdomTree and Invesco Galaxy earlier this year.

Already down sharply on the day, bitcoin (BTC) fell further on the news, now off 4.1% over the past 24 hours to $26,100.

The SEC began reviewing the applications, from both crypto-heavy and traditional finance firms like Wise Origin (Fidelity), BlackRock and Invesco Galaxy, last month. The applicants hope to launch the first spot bitcoin ETF, which advocates have argued would allow for greater retail investment in the bitcoin space while saving investors from the troubles of setting up a wallet or having to buy bitcoin directly.

Today’s orders see the SEC holding off on any firm decision, instead extending existing comment periods and allowing for greater public feedback on the applications.

Earlier this week, the D.C. Circuit Court of Appeals ruled that some of the regulator’s arguments in rejecting bitcoin ETF applications seemed “arbitrary and capricious,” after Grayscale argued that the SEC didn’t have a firm basis to reject its bid to convert the Grayscale Bitcoin Trust into an ETF. Grayscale and CoinDesk share a parent company in Digital Currency Group.

Judge Neomi Rao, writing for the unanimous court, said the SEC’s denial of the application was inconsistent with the approval of a pair of bitcoin futures ETFs, and did not explain why it viewed these types of products differently given the underlying bitcoin market had a “99.9% correlation” between spot and futures market prices. Grayscale’s argument that its proposed ETF was “materially similar” to the futures ETFs won.

“First, the underlying assets – bitcoin and bitcoin futures – are closely correlated. And second, the surveillance sharing agreements with the CME are identical and should have the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin and bitcoin futures,” she said.

The SEC has used similar arguments in rejecting other ETF applications as it did in rejecting Grayscale’s bid. The appeals court ordered the regulator to review the application once more.