The Securities & Exchange Commission must reconsider Grayscale's bid to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, according to a federal appeals court. The court ruled that the SEC's rejection of the conversion was "arbitrary and capricious because the Commission failed to explain its different treatment of similar products." Yahoo Finance's Alexis Keenan and David Hollerith break down the ruling and what it means for the crypto community.

Video Transcript

BRAD SMITH: A federal appeals court says the SEC must review Grayscale's bid to convert its bitcoin trust into an ETF. The trust issuer manages the world's largest cryptocurrency fund and first applied for the conversion back in October of 2021. Let's break it down with Yahoo finance's Alexis Keenan and David Hollerith.

And, Alexis, I want to go to you first on this. What do we know about how this has played out so far in the courts? And what does this signal next?

ALEXIS KEENAN: Yeah, so this decision, it's coming from an appellate court, so a very high court, just under the supreme court in D.C. And what this court is saying is that the sec has to go back and review its rejection of this spot ETF.

Now, the SEC has already approved several futures ETFs for bitcoin but hasn't done so in this capacity, so it's saying that this decision that the SEC made, that it was arbitrary and capricious. And when the court says that, what they mean is that the agency has abused its discretion, that it could have come out another way, so it wants the sec to go back and take a look at this. So today a win for Grayscale, getting a reconsideration of this effort that it's been making for this conversion.

BRAD SMITH: Wow.

RACHELLE AKUFFO: And, David, I want to bring you in here in terms of the reaction from the Bitcoin community and even the movement that we've seen in the Bitcoin price so far this morning. What are your big takeaways?

DAVID HOLLERITH: Yeah, I think if you look at the bitcoin chart right now, it's about up 4% on the day. But in the last hour after the court decision, it rose 5%. So really, what we're seeing is generally investors in the industry are taking this in stride.

For a little bit larger context, this is a different issue than some of the other things that the industry is dealing with, the SEC. But there's been sort of a clash between crypto businesses and the federal securities regulator, and so anything like this, at least in terms of sentiment, is investors seeing it as a win against the regulator and offering them more room to have crypto products, Bitcoin ETFs, or even just the listing of other crypto assets as approved in the us for investors. So it's a big win.