The Grayscale Bitcoin BTC -1.12% Trust (GBTC) discount has fallen to its lowest level in nearly two years as the Securities and Exchange Commission (SEC) fails to appeal against the recent Grayscale ruling.

The GBTC discount to net asset value (NAV) — meaning how much lower the market price of each share is than the value of the bitcoin it represents — is trading below 16% for the first time since December 2021, hitting 15.9% by market close on Friday, according to The Block’s data dashboard.

GBTC trades at a discount as the shares currently cannot be redeemed, so the only option is to sell them to other prospective buyers. However, it historically traded at a premium until 2021’s crypto credit crunch.

The narrowing trend — seeing the discount shrink from over 40% before BlackRock and others filed spot bitcoin ETF applications in June — is likely a sign of increased optimism the SEC will approve a spot bitcoin ETF in the U.S., including the potential conversion of GBTC. However, the decision not to appeal doesn’t necessarily mean the regulator is ready to approve one.

SEC Grayscale ruling appeal deadline passes

The SEC had until midnight on Friday to appeal the ruling involving Grayscale's attempt to convert its flagship GBTC fund into a spot bitcoin ETF. An appeal after the market close was unlikely.

Reuters and Bloomberg reported that the SEC would not appeal, and a source also told The Block that the regulator was not planning to, which proved to be the case as the deadline passed. The court will now likely confirm its instruction that the regulator re-evaluate Grayscale’s application to convert its GBTC product to a spot bitcoin ETF, though the SEC could find other reasons to deny it.

The SEC did not provide a statement, with Chair Gary Gensler declining to comment on the matter when asked at a press conference on Friday.

“The Federal Rules of Appellate Procedure’s 45-day period to seek rehearing has now passed,” a Grayscale spokesperson told Fox Business over the weekend. “The Court will now issue its final mandate within seven calendar days. The Grayscale team remains operationally ready to convert GBTC to an ETF upon the SEC’s approval, and we look forward to sharing more information as soon as practicable.”

Last week, Bloomberg Senior ETF Analyst Eric Balchunas said the SEC is actively working with other issuers on redemption, custody and legal aspects — in a “break from the typical pattern of delay, delay, radio silence then denial.” He predicts a 75% chance of approval by the end of this year and 90% by March 2024.

While optimism may be increasing, any such approval is not likely to happen quickly, according to Jennifer Schulp, director of financial regulation studies at the libertarian think tank Cato Institute.

"It doesn't mean that that approval is coming quickly and it's still not a certainty given that the SEC could re-review and deny on different grounds and basically start this legal fight all over again," Schulp said on Friday.

A three-judge panel in the U.S. Court of Appeals for the D.C. Circuit ruled in August 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 the plan for the conversion of its flagship GBTC fund. 

Bitcoin’s continued rise

Bitcoin rose just over 1% on Friday following reports the SEC would not appeal the Grayscale ruling. That rise continued over the weekend and into early Monday morning, with bitcoin up nearly 4% since the deadline passed. It is currently trading at around $27,750, according to CoinGecko data.

K33 Research Senior Analyst Vetle Lunde and Vice President Anders Helseth noted on Tuesday that appeal or not, the decision could lead to a strong market reaction for the price of bitcoin in the short term before emphasis defers to the next set of decision deadlines on delayed spot bitcoin ETF applications, including those from BlackRock, Fidelity, VanEck and Invesco.

GBTC has pushed higher than bitcoin year-to-date, up 146.4% compared to bitcoin’s price gain of 67.6%, according to TradingView.