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Bitcoin's Price Pops 7% Following Grayscale's Win Over SEC

By:Mike Martin

A U.S. Appeals Court cleared a path for a Grayscale-run spot bitcoin ETF

On Tuesday morning, the U.S. Court of Appeals for the D.C. Circuit cleared a path for a Grayscale-run spot bitcoin (BTC) exchange-traded fund (ETF).

The landmark ruling stated that the Securities and Exchange Commission (SEC), chaired by Gary Gensler, must reconsider the digital asset manager Grayscale's application for a spot bitcoin ETF.

The ruling may very well be a watershed moment for other companies with pending spot bitcoin applications, including Blackrock (BLK), Bitwise (BITW), VanEck, WisdomTree (WT), Fidelity (FNF) and Invesco (IVZ).

The federal judge ruling marks a big win for Grayscale, which sued the SEC in 2022 when the agency rejected the firm's bid for a spot bitcoin ETF. Grayscale has attempted in vain to convert its GBTC “trust” into a spot bitcoin ETF for a long time.  

What does this mean?

Bitcoin ETFs, like BITO by ProShares, already list on U.S. exchanges. These ETFs, however, are comprised of bitcoin futures contracts. Because all futures contracts expire, they must be rolled to keep the ETF active. When futures are rolled, a debit is often incurred. This is known as “contango,” which can cause an ETF to shed value over time. 

Spot ETFs, on the other hand, hold the actual underlying. A spot bitcoin ETF, therefore, would hold bitcoin 1x1 directly without having to incur any rolling costs.

Why does this matter?

Due to the historically poor performance of futures-based ETF products, institutional money and financial advisors (which manage upwards of $30 trillion worth of capital) have been reluctant to participate in the cryptocurrency market. 

The introduction of a spot bitcoin ETF could very well be a game changer. The wider cryptocurrency market reacted positively to the news, with bitcoin rallying ~7% by 1 p.m. Eastern Time and ether (ETH) up 5%. Coinbase (COIN) is currently up 15% as we went to press. 

This could just be the beginning. In 2023, bitcoin has become uncorrelated to the U.S. stock market. Diversification among uncorrelated asset classes is a major component of modern portfolio theory (MPT). Regardless of conviction, if there is a viable option such as a spot ETF to diversify an investment portfolio, money managers will jump at the opportunity. 

When and if cryptos like bitcoin outperform the wider stock market, expect a huge shift of wealth into digital assets.

Mike Martin, head of content for tastycrypto, has more than 15 years of experience in the investing and trading industry.

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