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In a pivotal ruling for the crypto industry, the U.S. Court of Appeals for the D.C. Circuit unanimously sided with Grayscale Investments over its dispute with the SEC to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF.

Here's the most important line from the judge's ruling:

In the judges view, the SEC has inconsistently rejected spot Bitcoin ETFs, particularly those from Grayscale, employing criteria that deviates far away from their historical practices for approving similar products.

This undermines the SEC creditability big time… and significantly heightens the chance of a spot BTC ETF approval in the near future.

As result, Bitcoin’s price spiked more than 5% on the news.

What’s Next?
There is no doubt about it – this is a major win for crypto as a whole and Grayscale more specifically.

But the battle isn’t over, as we highly doubt the SEC goes down without a fight.

As of today, the SEC now must re-review Grayscale’s ETF proposal. In the meantime, the SEC can make one of three decisions:

So, today, crypto celebrates. Tomorrow, the fight continues…

Here are some thoughtful opinions/threads on the matter:

Investment Musings
Let’s just go ahead and say that this ETF does get approved.

If so, what would actually happen?
A bump in prices: There’s no denying that a spot bitcoin ETF approval is extremely bullish for bitcoin prices in general. A significant amount of capital has been idly waiting for an opportunity like this to invest in bitcoin through a more conventional investment channel.
While we can’t guarantee higher BTC prices on the heels of an approval, we can look at the history of SPDR Gold Trust (GLD) – the largest physically backed gold ETF – to give us an idea...
GLD was launched back in 2004, just prior to the 2008 recession. Ever since, the price of the hard asset hasn’t looked back:

The introduction of GLD made it significantly easier for individual investors, financial advisors, and institutional investors to invest in gold, leading to increased demand for the asset. We’re cautiously optimistic that a BTC ETF will have a similar market impact.

A more mature asset: It's important to remember that while the introduction of a spot BTC ETF will make it easier to invest in bitcoin, it won’t be the sole driver of bitcoin prices.

An approval, however, should dramatically decrease price volatility.

A less volatile asset greatly benefits portfolio managers and institutional investors around the world, giving them more confidence that bitcoin can serve as a hedge and/or store-of-value in a portfolio, similar to gold.

That said, one can expect – in the not too distant future with an existing spot BTC ETF – that bitcoin, like gold, could become increasingly reactionary to economic indicators, global crises, inflation rates, etc. (i.e. increasing interest rates will be a headwind… and decreasing rates will be a tailwind).

In other words, if investors and assets managers treat bitcoin as digital gold, it should start trading a lot more like gold and (hopefully) a lot less than a speculative asset that abruptly swings after short squeezes, hacks, stablecoin depegs, Elon tweets, and so forth.

The Only Catalyst That Matters
Let’s review. For the past year and a half, the crypto industry has faced a lack of driving forces for price growth and positive developments.

The main obstacle has come from ongoing scrutiny and regulatory challenges from key figures in D.C. The absence of clear guidelines and the SEC’s ongoing game of whack-a-mole has significantly hindered innovation and dampened enthusiasm in the crypto space.

Think about it: who would want to build in crypto right now with today’s regulatory sh*tstorm?

However, the potential approval of a Bitcoin ETF could be a game-changer. Truly. If regulators approve a spot ETF, then by proxy, they have to be more forgiving on many other crypto initiatives around bitcoin.

So, are we optimistic about this? Without a doubt.

Does the buzz surrounding the potential ETF merit the attention? Absolutely.

However, it's important to note that the possible approval of this ETF isn't the sole factor that should command our attention in the crypto world.

The reality is that the issues with traditional finance – what some might call "funny money" – remain unresolved. The harsh truth is that phony capitalism is still alive and well – arguably the worst it’s ever been.

And in this context, bitcoin doesn't have to achieve anything specific after this ETF approval. It just simply needs to offer a more transparent and unprintable alternative to fiat currency.

While the latest regulatory news had a positive result on GBTC’s overall stock price, it also positively impacted its “discount”, tightening it from 25% to 18%.

You see, although GBTC seems like a straightforward vehicle – giving investor’s a cleaner and safer way to own bitcoin rather than purchasing the underlying asset – since 2021 this hasn’t been the case.

That’s because, in February, 2021 GBTC began trading at a discount, with the price of one share being valued lower than the bitcoin it represents.

Although this was an annoying outcome for those who bought GBTC when it was trading at a premium, the discount allowed some traders to begin gobbling up shares to take advantage of the arbitrage opportunity.

At its largest discount to Net Asset Value (NAV) of nearly 50% in December 2022, investors were being given a risk averse way to buy bitcoin at a huge discount.

We even discussed the trade in December, 2022 the trade stating:

That’s because, we felt the discount had multiple ways it could close:

And while DCG hasn’t shown any willingness to give up its golden goose of fees, between the recent Ripple ruling and yesterday’s SEC ruling, the discount has closed to less than 20%.

So the question arises: does the trade still make sense, or is it too late?

For that, we turn to one of our favorite investors and major GBTC shareholders, Boaz Weinstein.

Now, most of you have never heard of Boaz Weinstein before. In fact, Mr. Weinstein goes to great lengths to keep a relatively low profile, but he is not only one of the best fixed-income investors of our time, he is also a major player in closed-end-fund arbitrage. You can learn more about him here.

Yesterday, Boaz tweeted that he believes the trade is no longer attractive for multiple reasons.

Let’s quickly break down what each one means.

Our take
As much as people take jabs at DCG, GBTC, and Barry Silbert, we have to admit that the launch of GBTC was a pivotal moment that brought a huge amount of investors into crypto that may not otherwise have joined.

With that being said, we tend to agree with Boaz here that for investors looking to simply partake in an arbitrage trade, this may not be the best one to go with now.

But, for those that fundamentally believe in bitcoin, believe an ETF will be approved, and want to juice their returns by a potential 15 - 20%, buying GBTC today is a good way to play it.

Just be careful. With all the recent negative happenings at Grayscale’s parent company DCG, there is more incentive than ever for the company to keep fees at the highest point possible.

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