- On 29 August a Washington appeals court ruled that the SEC had not justified its refusal to convert Grayscale’s bitcoin fund into an exchange-traded fund.
- A spot bitcoin exchange-traded fund (ETF) would allow access to the asset from the usual securities account; the market began to assume they would come.
- The information is not a recommendation: this is a highly volatile asset and each decision must take account of personal risk, horizon and taxation.
On 29 August 2023 a Washington appeals court ruled that the SEC had not justified its refusal to convert Grayscale’s bitcoin fund into an exchange-traded fund. The market began to assume that products of this kind would eventually arrive.
The ruling did not end the debate over crypto-assets, but it did open a route that had until then been closed in practice. To understand it, one needs to know what an exchange-traded fund is, why its existence matters to traditional investors and why a court ruling can change a regulator’s decision timetable. It is worth remembering that the crypto-asset sector has lived through cycles of enthusiasm and disappointment, and that each regulatory development tends to provoke intense price reactions that do not always last as the weeks pass.
What the court decided
The ruling did not oblige the SEC to approve the fund outright, but questioned whether the regulator had given sufficient reasons for its rejection.
That distinction is important. A court does not replace the regulator in its assessment of the substance, but it can require it to explain its decisions coherently, especially if it has treated similar products differently. The practical result was that the SEC would have to reconsider the application with a stronger argument. The ruling, moreover, concerned a specific case and the reasoning behind an administrative decision, so it did not by itself resolve all the open questions about how such products should be regulated in the United States.
What an exchange-traded fund is
An exchange-traded fund, or ETF, is a product that is bought and sold on the stock exchange and that replicates an asset or a basket of assets. A spot bitcoin one would allow many investors to access the asset through their usual securities account, without having to hold the cryptocurrency directly.
For the traditional investor, that removes practical barriers: there is no need to open an account on a specialist platform or manage access keys. But it does not remove the risk of the underlying asset either: the fund’s price will follow that of bitcoin, with its swings. However likely their arrival seemed, the final word remained with the regulator. Management costs, the way the underlying asset is held and the difference between the fund’s price and the value of what it contains are aspects worth examining in any product of this kind before deciding.
Why it mattered for mining too
The regulated route to investing in bitcoin was making headway in the courts. For the infrastructure that sustains the network, such as mining, more institutional demand was relevant news, because greater interest in the asset can influence its price and, with it, the profitability of those who produce it.
Even so, this information should not be read as a recommendation: this is a highly volatile asset, and any investment decision must take into account each person’s own risk, horizon and taxation. Anyone considering dealing in these products should inform themselves well about their terms and discuss it with an adviser before acting. Bitcoin mining companies share with the rest of the sector a high sensitivity to the asset’s price, in addition to dependence on the cost of energy, which is why their performance tends to be more volatile than that of other industries.
A regulated channel may ease access, but it does not by itself reduce the asset’s volatility.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
