Thus, when GBTC was the only vehicle for gaining exposure to bitcoin via a listed instrument on a traditional exchange, market demand outstripped supply and GBTC shares traded at a premium, in other words, at a higher value than the bitcoins held by the Trust. This premium was observed for most of the 2015-2019 period. But when supply outstripped demand, around the time bitcoin futures ETFs became available, the premium disappeared and turned into a relatively large discount.

Several years ago, Grayscale asked the SEC to convert its closed-end fund into an ETF so that it could create and redeem shares. This mechanism would make it possible to maintain the price and net asset value at virtually the same level. To date, this conversion has not been approved, as the SEC has so far rejected all requests for a 'spot' bitcoin ETF.

Source: Bloomberg

Grayscale pointed out that the SEC had already approved ETFs investing in bitcoin futures. If these futures-based ETFs were acceptable, how could it be otherwise for an ETF to hold bitcoin directly? Grayscale argued that the SEC had not provided a clear justification for this differentiation.

Last Tuesday, the Court of Appeal ruled in favour of Grayscale. The court ruled that the SEC had not adequately explained its reasons for refusing Grayscale's proposal and that it should reconsider its decision.

This decision could pave the way for the first bitcoin cash ETF and considerably reduce the massive discount to net asset value. In fact, the GBTC's discount to its net asset value was partially reduced as soon as the Court of Appeal announced its decision.

But while the court's decision is a monumental step forward, it does not guarantee an outright victory for Grayscale, and the battle is far from over. Uncertainty remains over what strategy the SEC might adopt. It could still reject the proposal, albeit for different reasons. The SEC does have the option of counterattack, taking the case to the US Supreme Court or re-examining Grayscale's application.

Coincidentally, the SEC dampened hopes of an imminent launch of a 'spot' bitcoin ETF two days after the Appeal Court ruled in favor of Grayscale. On Thursday, the SEC said it needed a "longer period" to evaluate the various applications to launch a Bitcoin ETF, including those from BlackRock, Wisdom Tree Funds, Invesco & Galaxy Digital, and Valkyrie Funds.

One by one, the SEC has announced the postponement of its decision on almost all pending Bitcoin ETF applications, except for Global X. According to documents filed by the financial market’s regulator, it will take at least until 17 October to decide whether to approve or reject most of the applications. The SEC has set a new deadline of 16 October for Bitwise's application, while Valkyrie has been given a deadline of 19 October (see below). We will probably have to wait until next year to see the first launch of a bitcoin cash ETF - if there is one...