Bitcoin's price plummeted late Thursday amid reports that property developer China Evergrande had filed for bankruptcy protection in a U.S. court. A nervous market is also awaiting a ruling that could come as early as tomorrow and resolve a lawsuit filed by Grayscale Investments against the U.S. Securities Exchange Commission.

The price of the world's largest cryptocurrency by market capitalization fell below $27,000 for the first time in almost two months, declining 9.1% to $26,275 at 6:19 p.m. ET, according to CoinGecko.   

Minutes from the Federal Reserve's July 25-26 meeting, meanwhile, showed monetary officials are still fixated on prioritizing the battle against inflation, with some reading that as a signal that rate hikes might not be over. The S&P 500 dropped 0.8%, slumping for the second day in a row, and the Nasdaq 100 slid 1.2%.

Conflating market uncertainty is the current debt crisis at China's largest property developer, Country Garden, with fresh contagion fears spreading that are reminiscent of the crisis caused by China's Evergrande Group two years ago.

Grayscale's battle with the SEC

Grayscale sued the SEC last year for rejecting its proposal to convert its flagship fund, GBTC, into a spot bitcoin ETF, and the outcome could influence the regulator's ongoing review process for a number of other spot bitcoin funds seeking approve. A Grayscale win would likely be seen as a bullish sign, while a loss could signal that emerging space will face regulatory challenges ahead.

Genesis head of trading Gordon Grant described the market as positioned in anticipation of a binary verdict, but he noted that court rulings are not always so cut and dry.

"There are many factors to consider, such as obiter dictum, differing qualifications or stays of execution," he told The Block, noting parallels with a recent decision in the ongoing dispute between the SEC and Ripple Labs where the outcome was immediately interpreted as a landmark legal victory for the cryptocurrency industry that sent the value of XRP soaring. However, after the judgement was unpacked, the verdict appeared more nuanced.

Bitcoin faces downside pressure if the SEC wins

In the event of a verdict that favors the SEC, bitcoin could slip below $26,000, an analyst told The Block.

"A ruling favoring the SEC might temporarily push the bitcoin price into the zone of $26,000 to $28,000," YouHodler chief of markets Ruslan Lienkha said, adding that "a further drop to $20,000 is possible, but only in the case of impactful, negative events happening in TradFi, such as a simultaneous drop of stock indexes, gold, and some commodities."

Genesis' Gordon Grant argued that a fall to around $20,000 is unlikely, although he said his assessment excluded "the simultaneous surfacing of systemic risks." He also underscored the narrowing GBTC/BTC discount, which he said could be a sign of market optimism about the ultimate approval of spot bitcoin ETFs.

Whatever happens with the Grayscale ruling, CoinShares head of research James Butterfill compared the recent wave of spot bitcoin ETF filings to the first gold ETF applications, which were approved over two decades ago.

"With gold ETFs, there were proposals around metal exchanges being supervised, we see similar solutions being proposed for the crypto markets today," he told The Block. "This is a pragmatic approach and likely to win over the regulators in the end, it may just take a little longer than some expect."

(Updates prices and report on China Evergrande.)