A court opinion siding with Grayscale Investments on Tuesday could clear the way for the first spot bitcoin exchange-traded fund in the U.S., though the Securities and Exchange Commission could still push back, experts say.

"This is a big loss for the SEC," said Jennifer Schulp, director of financial regulation studies at the libertarian think tank Cato Institute. 

Three judges in the U.S. Court of Appeals for the D.C. Circuit ruled on Tuesday morning that the SEC has to re-review Grayscale's bid for a spot bitcoin ETF after the asset management firm sued the agency last year following its rejection of its plan for the conversion of its flagship GBTC fund. The court specifically addressed the SEC's differential treatment of spot bitcoin ETFs and similar funds based on futures contracts, which the regulator has approved. 

"The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products," the opinion stated. "We therefore grant Grayscale’s petition and vacate the order."

Not the end of the road

The opinion doesn’t necessarily mark the end of what's been a long, drawn out process. The SEC has the next 45 days to request an en banc hearing, meaning a rehearing with all three judges. After 45 days, the court will issue a final mandate that will have details on what happens next.

With the SEC already moving to appeal what was portrayed as a partial win for Ripple Labs in a separate case against the regulator, it's hard to imagine that it plans to let the decision stand without a fight. 

The SEC could seek review of the D.C. Circuit’s decision in the Supreme Court, or review "by the en banc D.C. Circuit before trying to get the Supreme Court to take the case," Schulp said. The SEC, too, could choose to not appeal the D.C. Circuit’s decision and go back to reconsider Grayscale’s proposal, she said. 

"This doesn’t strike me as a case that the SEC wants to try to take to the Supreme Court – for various reasons including the strength of unanimous D.C. Circuit panel’s opinion here," Schulp said. 

SEC’s potential next steps 

The D.C. Circuit rejected the SEC's view that Grayscale’s proposal was not "designed to prevent fraudulent and manipulative acts and practices," Jake Chervinsky, chief policy officer at the Blockchain Association, said on the social network X. The SEC's reasoning on fraud and manipulation has been cited as a concern for years in past spot bitcoin ETF rejections. 

The court didn't order the SEC to approve Grayscale’s proposal, though, Chervinsky added. The SEC could pick a different reason to deny the proposal, he said.

"But another theory is that the SEC will take the DC Circuit's decision as a (semi-)graceful exit from their anti-ETF position," Chevinsky said. 

"'We disagree, but we're following the rule of law' is a convenient excuse to back out of a losing battle," Chervinsky added. 

A broader impact

The opinion could be a positive for a slew of firms that have applied for spot bitcoin ETFs over the past few months including big names such as BlackRock and Fidelity. 

The Crypto Council for Innovation called the opinion on Tuesday "big, positive, and precedent setting."

"This ruling is not just about Grayscale or Bitcoin, it sets a precedent for the broader crypto industry," said Ji Kim, general counsel and head of global policy for the Crypto Council for Innovation. 

Others said the SEC should rescind past bitcoin futures ETF approvals. 

"The Court ruled that the SEC failed to sufficiently explain its decision in denying this spot ETF while previously allowing other Bitcoin futures ETFs," said Dennis Kelleher, Better Markets CEO. "It does not change the fact that the bitcoin market is subject to fraud and manipulation or that an ETF would be a serious threat to investors. The SEC should rescind the prior unwarranted bitcoin futures ETF approvals."