NEW YORK/LONDON (Reuters) - Bitcoin rose to two-week highs on Tuesday after a U.S. court ruled that the Securities and Exchange Commission (SEC) should not have rejected digital asset manager Grayscale's application for a spot bitcoin exchange traded fund.

It was last up nearly 7% at $27,910

The SEC's denial of Grayscale's proposal was arbitrary and capricious because the regulator failed to explain the different treatment between bitcoin futures ETFs and spot bitcoin ETFs, said a panel of judges in the District of Columbia Court of Appeals in Washington.

"Despite the inevitable SEC appeal, to our mind there is no doubt now, spot BTC ETFs are coming to the US. We don't believe the SEC will act as kingmaker and the most likely outcome is a block approval of applications that meet requirements, probably in Q1 2024," said Tim Bevan, chief executive officer at ETC Group, crypto exchange-traded product provider.

He also expects pent up U.S. demand to positively impact bitcoin prices and help global acknowledgement of crypto as a new asset class.

The regulator did not immediately respond to requests for comment on Tuesday.

Both parties have 45 days to appeal the ruling, in which case it would either go to the U.S. Supreme Court or an en banc panel review. It is unclear if the SEC will appeal.

The SEC last year rejected Grayscale's application for a spot bitcoin ETF, arguing the proposal did not meet anti-fraud and investor protection standards. It cited the same reason in denying dozens of other applications for similar products, including those from Fidelity and VanEck.

Ether, the second largest cryptocurrency in terms of market capitalization, was also up, rising about 5% to $1,730.50.. Earlier, it hit a two-week peak as well of $1,735.60.

Bitcoin and ether have been in a recent slump, caught up in a broad risk-off move due in part to expectations that the Federal Reserve will keep interest rates higher for longer amid persistently elevated inflation.

So far this month and despite Tuesday's sharp gains, both bitcoin and ether were down 6% and nearly 8%, respectively.