Cryptocurrency prices jumped on Tuesday after the industry’s largest fund manager scored a legal victory in its long-running attempt to make it easier for investors to put Bitcoin in their portfolios.
The U.S. Court of Appeals for the D.C. Circuit ruled that the Securities and Exchange Commission had improperly denied an application from the asset manager, Grayscale Investments, to create a Bitcoin exchange traded fund, calling the rejection “arbitrary and capricious.”
Grayscale is seeking to create the fund to give investors exposure to the cryptocurrency via traditional brokers and markets rather than digital asset exchanges.
The S.E.C. has already approved funds that bet on Bitcoin futures, or price fluctuations in the cryptocurrency, but it has denied numerous requests for an E.T.F. holding Bitcoin itself, arguing that the markets are subject to fraud and manipulation.
The holy grail of cryptocurrency enthusiasts has long been a Bitcoin fund that trades on traditional stock exchanges, and the court ruling could move that dream closer to reality. Bitcoin prices jumped 5 percent after the announcement of the decision, which also helped buoy shares of cryptocurrency companies like Coinbase.
“This is a monumental step forward for American investors, the Bitcoin ecosystem and all those who have been advocating for Bitcoin exposure,” Jennifer Rosenthal, a spokeswoman for Grayscale, said in a statement.
A spokesman for the S.E.C. said it was reviewing the court’s decision to determine next steps. The agency has 45 days to request another review of the ruling.
Digital asset prices have been battered by a year of token crashes, company scandals, bankruptcies and regulatory crackdowns. The S.E.C., which has in recent months filed enforcement actions against crypto giants like Binance and Coinbase, is widely derided by digital asset fans, who dismiss skepticism of cryptocurrencies. On Tuesday, they celebrated the appellate court’s decision.
“This ruling is not just about Grayscale or Bitcoin, it sets a precedent for the broader crypto industry — this is big, positive and precedent-setting news,” said Ji Kim, head of global policy at the industry lobbying group Crypto Council for Innovation.
Bitcoin enthusiasts have dreamed of an E.T.F. since 2013, when Cameron and Tyler Winklevoss, the founders of the crypto exchange Gemini, applied with securities regulators. A Bitcoin E.T.F. would allow investors who want to bet on the cryptocurrency to buy shares in a fund that holds the cryptocurrency without directly exposing them to the more volatile and chaotic digital asset markets.
The first Bitcoin futures E.T.F. made its debut on the New York Stock Exchange in 2021, and the S.E.C. has since approved other such futures-based funds, which are associated with the Chicago Mercantile Exchange, a traditional commodities exchange that regulates Bitcoin futures trading the same way it does pork and corn.
It seemed a Bitcoin E.T.F. would soon follow, but the S.E.C. has denied numerous applications for a fund betting on Bitcoin itself, saying that underlying cryptocurrency markets are harder to oversee and subject to manipulation, a rationale that digital asset fans and E.T.F. applicants dismissed as inconsistent.
Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors. More about Ephrat Livni
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