The SEC’s refusal of Grayscale Investments’ proposal was “arbitrary and capricious”, a federal court said on Tuesday, handing the crypto asset manager a benchmark win that could clear the way for the first product of its kind

Bitcoin’s gains from a U.S. court ruling that strengthens future prospects for retail investor-friendly funds have rescued the token from a dull month, offering new hope over its longer-term outlook.

The SEC’s refusal of Grayscale Investments’ proposal was “arbitrary and capricious”, a federal court said on Tuesday, handing the crypto asset manager a benchmark win that could clear the way for the first product of its kind.

Bitcoin added over 7 per cent on the news, setting it on course for its best day since March and reducing some of the heavy losses suffered over the summer.

It was last trading at $27,920.

Hit by reduced demand for riskier assets caused by soaring U.S. Treasury yields, as well as a decline in volatility over quiet summer trading, bitcoin had before the ruling been on course for its worst month since November last year, when tumult reigned after the collapse of the FTX exchange. It is now set for monthly losses of nearly 5 per cent.

The victory for Grayscale is likely to now factor into the Securities and Exchange Commission’s future decisions for spot bitcoin exchange-traded funds filed by a number of leading financial companies this year, including the world’s biggest asset manager BlackRock, investors said.

Any advent of spot bitcoin exchange-traded funds could help the crypto industry tap a glut of previously untapped retail investor cash, in turn strengthening bitcoin’s price.

The market has been waiting for a catalyst for some time, and it is likely that this ruling will be taken as a notable sign that a BTC spot ETF is not far off, said Noelle Acheson, an economist who has tracked the crypto sector for several years.

Still, bitcoin’s prospects remain tied to the performance of wider markets, according to some investors.