A federal appeals court formalized a victory for Grayscale Investments LLC in its bid to create an exchange-traded fund based on Bitcoin over the objection of the US Securities and Exchange Commission.

The move sends the matter back to the SEC. The mandate puts into effect the court’s ruling in August, when it overturned the SEC’s rejection of Grayscale’s proposal to convert its trust into an ETF. Judge Neomi Rao called the SEC’s decision “arbitrary and capricious” because the regulator failed to explain why it approved similar products. The SEC had argued that an ETF based on Bitcoin lacked adequate oversight to detect fraud.

“The Grayscale team looks forward to continuing to work constructively with the SEC to convert GBTC to an ETF,” Grayscale spokeswoman Jennifer Rosenthal said in a statement. “GBTC is operationally ready, and we intend to move as expeditiously as possible on behalf of our investors.”

Approval of the ETFs is seen as a potential watershed moment by digital-asset advocates, who say broader access will lead to mainstream acceptance of what has been viewed by critics as a lightly regulated speculative niche. Industry scandals and bankruptcies such as the collapse of the FTX exchange helped to cut the estimated value of the sector by more than half since late 2021 to around $1 trillion. Bitcoin accounts for about half the total.

Bitcoin climbed above $31,000 on Monday for the first time since July amid expectations the mandate will help clear the path for an ETF.

The crypto market is closely watching efforts by asset managers to win approval for ETFs. Last week, Bitcoin briefly surged 10%, the highest price since August, on an erroneous report that BlackRock Inc. had won SEC approval for its long-awaited Bitcoin ETF. The move cooled after the world’s biggest money manager said its application remains under review. BlackRock is among about a dozen firms seeking to offer the products.

Earlier this month, the SEC decided against asking the appeals court to reconsider its ruling on Grayscale. The regulator doesn’t intend to make any other appeals in the case, said a person familiar with the matter at the time.

Read More: Grayscale’s Bitcoin ETF Push: What’s Next After Ruling Stands

Crypto advocates cheered the decision by the appellate panel, which will open the door for the industry to tap billions of dollars from everyday investors. It also represents a setback in Chair Gary Gensler’s push to clamp down on the crypto sector.

Grayscale has said that a conversion of its trust to an ETF would let it easily create and redeem shares. The current closed-end structure doesn’t let investors redeem shares when prices fall, which leads to trading a steep discounts compared to the underlying Bitcoin.

The discount on Grayscale Bitcoin Trust has narrowed significantly in anticipation of an ETF conversion. On Thursday, Grayscale filed an application for its Trust to list shares on NYSE Arca pending regulatory approval.

The likelihood and timing of spot ETF approvals remain in question. ETFs investing in futures on Ether — the second-largest token — debuted in the US in October, but failed to gain traction, a blow for arguments that crypto adoption is bound to expand. ETFs that hold Bitcoin futures were approved in 2021.

The case is Grayscale v. SEC, 22-1142, US Court of Appeals for the District of Columbia Circuit.

--With assistance from Dave Liedtka and Allyson Versprille.

(Update with Grayscale comment.)