The U.S. Securities and Exchange Commission (SEC) has been ordered to vacate its rejection of Grayscale Investments’ bid to convert its flagship fund – the Grayscale Bitcoin Trust (GBTC) – into an exchange traded fund (ETF). 

In an order issued on Tuesday, U.S. Court of Appeals Circuit Judge Neomi Rao granted Grayscle’s petition for review, meaning the SEC will have to reevaluate its treatment of the GBTC issuer’s application. 

Judge Rao referred to the SEC’s recent approval of two Bitcoin futures ETFs for trading on national exchanges and it’s denial of Grayscale’s application for a similar product.

“Petitioning for review of the Commission’s denial order, Grayscale maintains its proposed bitcoin exchange-traded product is materially similar to the bitcoin futures exchange-traded products and should have been approved to trade on NYSE Arca. We agree,” said Judge Rao.

“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” she added.

Although the ruling does not necessarily mean that the SEC will approve Grayscale’s application, it was still seen as a massive win for the digital asset industry, which has been at the receiving end of enforcement actions and scrutiny from the securities regulator.

Grayscale CEO Michael Sonnenshein celebrated the ruling in a post on X, adding that the firm’s legal team would be reviewing the court’s opinion.

GBTC is the world’s largest over-the-counter traded Bitcoin fund, with over $17 billion in assets under management. Following the news of the ruling, the discount on GBTC shares narrowed to as low as 24% and the price of Bitcoin rallied 6% to a price of $27,638.