• Grayscale’s win yesterday August 29th saw the DC Court rule against the SEC’s power to deny transforming GBTC into a Bitcoin ETF, prompting a 6% Bitcoin price surge. 

• Various pending applications have challenged the SEC’s rejections of crypto ETFs, and a final decision could potentially be postponed until March 2024.

Grayscale achieved a significant victory on Tuesday, August 29th, as the DC Court ruled that the SEC does not have the authority to reject Grayscale’s transformation of its Bitcoin Trust GBTC into an exchange-traded fund (ETF) tied directly to Bitcoin prices.

The court’s decision predominantly stated that the SEC’s reasoning for rejecting Grayscale’s Bitcoin ETF, citing its lack of being “designed to prevent fraudulent and manipulative acts and practices,” was inadequate. As a result, the case will go back to the commission for further examination.

Until now, the U.S. SEC has rejected all proposals for cryptocurrency exchange-traded funds (ETFs) that directly track the value of cryptocurrencies. However, numerous applications are under assessment, including BlackRock, ARK Invest, Bitwise Asset Management, VanEck, WisdomTree, Invesco, Galaxy Digital, Fidelity, and Valkyrie submissions. The commission has the authority to repeatedly postpone making a decision or extend the final approval deadline for most of these mentioned applications until March 2024.

At the time of this statement, the SEC had not issued any public remarks regarding the appeals court’s verdict. Nevertheless, it was reported that the commission intended to evaluate the case to determine its subsequent actions. While the commission might have the option to contest the decision, numerous experts have suggested that Grayscale’s initial success might create a path toward potential future endorsement of these ETFs.

SEC’s Potential Courses of Action

While this outcome holds immense importance for the Bitcoin sector, it’s important to note that the court’s decision doesn’t guarantee an immediate conversion of GBTC into a Bitcoin ETF. Bloomberg’s analyst, James Seyffart, sheds some insight into the potential future steps the SEC might take in response to this recent advancement.

Allowing the conversion of the GBTC product to a spot Bitcoin ETF is a potential course of action for the SEC. Nonetheless, considering the SEC’s history of rejecting such investment products, this path will not be straightforward.

Suppose the SEC intends to prevent Grayscale from proceeding with the spot Bitcoin ETF. In that case, they have two alternatives: Seyffart explains that the SEC could potentially revoke the approval of Bitcoin Futures ETFs. The recent directive from the DC Circuit implies that it’s not feasible to express concerns about market manipulation while simultaneously permitting Bitcoin futures ETFs. However, Seyffart indicates that the likelihood of this occurring is quite minimal.

The second option entails rejecting the proposal based on previously unexplored grounds. As suggested by the Bloomberg analyst, this could relate to issues concerning Bitcoin custody or settlement, matters that don’t apply to futures ETFs. The SEC has consistently voiced substantial worries concerning the arrangements for the safekeeping of Bitcoin.

The success achieved by Grayscale has acted as a significant catalyst for the struggling Bitcoin and the wider cryptocurrency market. 

Insights from Experts on Grayscale’s Spot Bitcoin ETF

Several experts in the industry have contributed their opinions regarding Grayscale’s triumph. Jake Chervinsky, who serves as the Chief Policy Officer at the Blockchain Association, commented that this victory undeniably serves as a major setback for the SEC. However, this favorable turn of events doesn’t guarantee an entirely favorable outcome for the SEC either.

Jake maintains a pessimistic perspective on the likelihood of Grayscale obtaining approval for their product from the SEC. He anticipates that the SEC could discover another rationale to reject the product.

Conversely, Peter Schiff, a critic of Bitcoin, has expressed his view that the transformation of GBTC into a spot Bitcoin ETF might have bearish implications for Bitcoin. He stated that traders could presently purchase GBTC and sell or short Bitcoin. If GBTC evolves into an ETF, the discount to its Net Asset Value (NAV) would disappear. In this scenario, shareholders might choose to redeem their shares, compelling GBTC to sell Bitcoin in the market, which could substantially increase the available supply for trading.