Grayscale’s petition for review of the SEC’s decision in the Bitcoin ETF case is granted by the court.

In its conflict with the Securities and Exchange Commission, Grayscale Investments won the support of a three-judge panel for the DC Circuit Court of Appeals. Grayscale’s victory on Tuesday comes after the company filed a lawsuit against the SEC in June 2022 after the US securities regulator refused to let the crypto-focused asset management convert its Bitcoin Trust (GBTC) into an ETF. 

The company had claimed that the SEC’s approval of ETFs that invest in bitcoin futures contracts but not proposed products that would hold bitcoin directly was “arbitrary and capricious.”

Grayscale’s motion for review was approved by the court, and it also stipulated that “the commission’s order be vacated,” according to the document. It follows that the SEC, which had previously rejected Grayscale’s application, must again examine it.

In a tweet on Tuesday, Grayscale’s CEO Michael Sonnenshein stated that the company’s legal department is “actively reviewing” the court’s ruling.  “This is a monumental step forward for American investors, the bitcoin ecosystem, and all those who have been advocating for bitcoin exposure through the added protections of the ETF wrapper,” a Grayscale representative told Blockworks. 

The company “will be pursuing next steps with the SEC” after analyzing the opinion, the spokesman continued. An SEC representative wrote in an email to Blockworks, “We are reviewing the court’s decision to determine next steps.”

According to TradingView statistics, the price of bitcoin spiked on the news, crossing $27,000 after starting the day at roughly $26,100.The idea that Grayscale would score a rare victory over the SEC was supported by the industry before the court’s ruling on Tuesday. 

Donald Verrilli Jr., a legal consultant for Grayscale, asserted at the case’s oral arguments in March that there is a 99.9% correlation between prices on the spot and futures markets for Bitcoin.  

That sentiment was mirrored in the submission on Tuesday. The SEC, according to the court, neither disputed Grayscale’s “evidence that the spot and futures markets for bitcoin are 99.9% correlated nor suggested that market inefficiencies or other factors would undermine the correlation,” which is supported by both spot and futures market data. 

“The Commission’s unexplained discounting of the obvious financial and mathematical relationship between the spot and futures markets falls short of the standard for reasoned decision making,” the complaint stated.

The causal connection between the bitcoin futures and spot markets, according to Emily Parise, an attorney with the SEC, is “the key empirical question that we don’t know the answer to.”

During the March hearing, DC Court of Appeals Judge Neomi Rao stated that the SEC had not explained why Grayscale was mistaken on the relationship between the Bitcoin spot and futures markets. 

According to James Seyffart, a Bloomberg Intelligence analyst, Grayscale has a 70% chance of winning. The next steps are not yet apparent, despite the verdict.  Industry observers have previously noted that the regulator might potentially reject GBTC’s conversion using a different justification if the courts find the SEC’s denial of it to be insufficient.