Grayscale Ruling Does Not Guarantee Bitcoin Spot ETF Approval, Traders Say

Bitcoin BTC$88,605.45 prices surged some 7% on Tuesday after weeks of slumber as traders reacted to hopes of the long-contended Grayscale Bitcoin spot ETF getting approved in the U.S. following a court decision.

A federal appeals court ordered the U.S. Securities and Exchange Commission (SEC) to "vacate" its rejection of the trust issuer's bid to convert the Grayscale Bitcoin Trust into an exchange-traded fund. This could potentially open the door for a spot bitcoin ETF in the U.S - even as the SEC has disapproved every such ETF application it's reviewed to date.

Grayscale and CoinDesk share the same parent company, Digital Currency Group (DCG).

But while most market participants are rejoicing, some remain cautious about the optimism, draining out the current euphoria amongst loyalists.

“Grayscale obtained the chance of seeing their filing re-evaluated by the SEC as the causes of rejection did not seem fair to the judge,” said Matteo Greco, research analyst at Fineqia International (CSE:FNQ), in a note to CoinDesk Wednesday. “It doesn't mean that now Grayscale will be 100% able to list a spot Bitcoin ETF, nor that this will happen in the future.”

“Undoubtedly this development is a strong positive signal for the market. However, final decisions on when and if Grayscale will be able to list its product as an ETF are yet to be made,” Greco added, pointing out that some 2.5 million bitcoin are held at a short-term loss that may serve as headwinds in the coming months.

“Looking at the bigger picture and analyzing the whole digital asset market, trading volume remains extremely low. The cumulated volume on centralized exchanges for the month of August totals roughly $400 billion, the lowest number since December 2020,” Greco stated.

Some, however, said that while the federal court’s decision doesn’t point to outright approval, it makes for the first steps of a changing regulatory environment.

"While the decision does not yet mean that the first US bitcoin ETF will be approved, the court ruling It follows a pattern of legal escalation between regulators and digital asset players who have been giving solid arguments to support their case,” said Guilhem Chaumont, co-founder of trading firm Flowdesk in a message to CoinDesk.

“So even if this is not the definitive end of this case, we would not be surprised to see this as the first in a series of positive news about regulatory adoption in the US,” Chaumont added.

As such, long-term holders of bitcoin have shown a continued accumulation of the tokens despite a recent billion-dollar shakeout, suggesting a bullish outlook in the longer term remains intact among traders regardless of the current market lull.

These long-term holders are also seemingly holding onto their spot positions, refraining from outright trading or using their bitcoin as collateral, analysts from crypto exchange Bitfinex said Tuesday.