The legal victory of Grayscale in their recent dispute, Grayscale Investments v. SEC, over a Bitcoin exchange-traded fund (ETF) decision has stirred discussions within legal and crypto walls. The U.S. Court of Appeals for the D.C. Circuit ruled that the Securities and Exchange Commission acted unlawfully in denying Grayscale’s application for a Bitcoin ETF.
The denial of Grayscale’s application to list a spot Bitcoin ETF on a national exchange set a paradigm case for administrative law. It questioned whether the agency action was “arbitrary and capricious,” therefore unlawful, under the Administrative Procedure Act (APA). The three-judge panel unanimously held that SEC’s denial contradicted its earlier approvals of Bitcoin futures ETFs, reflecting the crucial administrative law principle – agencies must treat like cases alike.
Despite initial celebration, many have overlooked the fact that this decision, while a significant legal win for Grayscale and the crypto market, is not an outright defiance of the SEC’s stance toward cryptocurrency. In truth, this ruling underlines the APA’s long-standing principle of “reasoned decision-making”.
Judges Rao, Srinivasan, and Edwards, known for their academic approach to appellate judging, tackled the case with an informed and objective focus on the Administrative Procedure Act’s review. They reasoned that for such a review to succeed, an agency should have acted within a zone of reasonableness while considering the relevant subjects.
The SEC could appeal the decision with a rehearing or petition the Supreme Court for certiorari review. However, both seem unlikely, given that the case centers on a standard APA application and bears minimal markers for exceptional urgency. If an appeal is not forwarded, the SEC must comply with the verdict. Even so, the agency retains some leeway in maneuvering towards satisfactory outcomes.
The decision, nonetheless, looks promising for conventional investors and their financial advisors. Lowering roll costs and offering a familiar conduit for investing in Bitcoin, spot Bitcoin ETFs represent a more comfortable option for those looking to gain exposure to the asset.
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