By Ben Strack, Blockworks

Compiled by: Wu Talks about Blockchain

With just one week left before the U.S. Securities and Exchange Commission’s deadline to appeal Grayscale Investments’ legal victory, the agency’s decision could foreshadow the fate of a spot bitcoin ETF — at least the timeline for a potential launch.

While some industry observers say an SEC appeal could be detrimental to the timeline for a bitcoin ETF’s approval, many do not expect the SEC to appeal. Regardless of the commission’s choice, some industry observers believe a bitcoin ETF will eventually be listed for trading.

SEC’s Choice

A judge on the D.C. Circuit Court of Appeals ruled in August that the SEC was "arbitrary and capricious" in refusing to approve the Grayscale Bitcoin Trust's conversion into an ETF but approving a bitcoin futures ETF.

An SEC spokesperson told Blockworks that the agency is “reviewing the court’s decision to determine next steps.” Grayscale Investments issued a statement following the decision saying it will “work closely with the SEC to determine next steps for introducing GBTC to NYSE Arca as a spot Bitcoin ETF.”

The SEC’s deadline to challenge the decision is Oct. 13. It could seek to appeal to the U.S. Supreme Court — if granted by a writ of certiorari — or could ask the “en banc” of the appeals court to review the ruling.

Executives at Pantera Capital said in a September letter to investors last month that the Supreme Court path was unlikely, noting that “from a legal perspective, this case is not that significant.”

If the SEC chooses not to appeal, the court is expected to issue an order detailing next steps. That could include "instructing the SEC to approve the application, or to re-examine Grayscale's application, in which case the SEC could still reject the proposal on other grounds," according to a blog post from law firm Winston & Strawn.

Compass Point Research & Trading analysts Chase White and Joe Flynn said in a research note Friday that they believed the chances of getting a full hearing or a writ of certiorari were "virtually zero."

“We think Gensler (SEC Chairman) is aware of this, and we would not be surprised if the agency chooses not to appeal,” they added.

But even if the SEC chooses not to appeal, it may still seek to "exercise an obstructionist role," White and Flynn said.

“The SEC can still deny the conversion for different reasons, which makes the need for an appeal less urgent than in the Ripple case, where the judge’s decision was clear and had a significant impact on the legal classification of crypto assets,” Matteo Greco, an analyst at Fineqia International, told Blockworks.

An SEC spokesman declined to comment Friday.

Is launch just a matter of when, not if?

Sam Kerbage, chief investment officer at Hashdex, said in a webinar last month that the SEC asking Grayscale to submit a new proposal and rejecting it again for different reasons is the "most likely path."

Kerbage noted that resubmitting a proposal will start a 240-day review period.

The 240-day window for Ark Invest’s proposed Spot Bitcoin ETF expires on January 10. For other proposals, such as those from BlackRock and Fidelity, the final decision deadline is about two months later.

“The consensus view is that if this round of spot BTC ETF applications is approved, it will most likely happen on or before January 10th, as a rejection in January and approval in March would appear inconsistent,” said Alex Thorn, head of research at Galaxy Digital, in a statement.

Greco said the January timeline does mean "either full approval or irrevocable rejection."

“A rejection would undoubtedly have a short-term negative impact, especially as traders could take advantage of the ensuing market uncertainty and volatility to conduct speculative long and short trades,” Greco explained. “Conversely, an approval would generate a positive market reaction, signaling the potential for a large influx of traditional financial capital.”

Regardless of what happens in January, many agree that a spot Bitcoin ETF will eventually be traded in the United States.

Analysts at Bloomberg Intelligence said after Grayscale’s decision that they see a 75% chance that the SEC will approve a spot Bitcoin ETF by the end of 2023. The odds of such approval are 95% by the end of 2024.

“While our base case remains that the SEC will begin approving ETFs in early 2024, we acknowledge that this is by a narrow margin given Gensler’s continued anti-crypto stance,” White and Flynn wrote in their Friday note. “We believe, however, that approval of a spot BTC ETF is all but certain within the next two years given our view that the SEC has little chance of prevailing in court once all is said and done.”

Despite the uncertainty about the SEC’s next move, LMAX Group market strategist Joel Kruger believes that cryptocurrencies have the upper hand in terms of trends.

“We think the bigger message here is a narrative that continues to move crypto in a favorable direction,” Kruger told Blockworks. “In recent months, there has been a growing acceptance and understanding of the value proposition of crypto assets among the public and lawmakers.”