Bitcoin's price surged after a U.S. appeals court ruled in favor of Grayscale Investments in its ongoing battle against the Securities and Exchange Commission to convert its Grayscale Bitcoin Trust in a spot ETF.

The world's largest digital asset increased 5.2% over the past 24 hours to $27,472 at 12:17 p.m. ET, according to CoinGecko.

Over $76 million in cryptocurrency short positions were liquated in the hour after the Tuesday ruling. Of those, over $34 million short BTC positions were wiped out.

"This ruling is not just about Grayscale or bitcoin, it sets a precedent for the broader crypto industry," Ji Kim, General Counsel and Head of Global Policy for the Crypto Council for Innovation, said in a statement.

"This is big, positive, and precedent setting news," he continued. "It provides the obvious reminder that it is critical for regulators to provide much needed clarity and rationale when making such critical determinations affecting such a significant industry."

Grayscale's case against the SEC

The ruling means the SEC will likely have to review its rejection of the asset manager's spot bitcoin ETF application.

Judge Neomi Rao of the Washington D.C. Circuit Court of Appeals said the "denial of Grayscale's proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products." 

"Bitcoin's immediate price surge post-ruling underlines the market's anticipation and the profound impact such a decision holds," Kim added. "As spot bitcoins ETFs are now closer to a potential launch, we're witnessing real-time investor confidence in the crypto space amidst this court's ruling."

Pending ETF applications

The ruling could have ramifications for the multiple pending spot bitcoin ETF filings from various financial institutions, including BlackRock and Fidelity. 

Grayscale first filed an application to convert its GBTC fund into an exchange-traded fund in October 2021. The SEC rejected the application in June 2022, with the regulator saying the filing failed to answer the SEC's questions about preventing market manipulation.

Both parties now have 45 days to appeal the ruling, after which it could either go to the U.S. Supreme Court or an en banc panel review, meaning a rehearing with all three judges.

"Despite the inevitable SEC appeal, to our mind there is no doubt now, spot BTC ETFs are coming to the U.S.," Tim Bevan, CEO at ETC Group, said in a statement.

"We don’t believe the SEC will act as kingmaker and the most likely outcome is a block approval of applications that meet requirements, probably in Q1'24," he added. "The level of pent up institutional and retail demand in the U.S. is significant and we expect this to have a positive impact on the price of bitcoin as can be seen from today’s price reaction, as well as further accelerate the global trend towards acknowledging crypto as a new asset class."

(With assistance from Yogita Khatri.)