Key Takeaways:
SEC has until midnight on Oct 13 to appeal against Grayscale in the Supreme Court.
The conflict revolves around the investment firm’s right to transform its Bitcoin Trust into a Bitcoin spot ETF.
The regulator is unlikely to challenge the court’s clear decision, as it might find other bases to refuse a crypto-based spot ETF.
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YEREVAN (CoinChapter.com) – In less than 12 hours, the US Securities and Exchange Commission (SEC) will reach a deadline to appeal the court’s decision, granting Grayscale Investments the opportunity to transform its Bitcoin Trust (GBTC) to a Bitcoin spot exchange-traded fund (ETF).
The regulator has till midnight on Oct 13 to appeal in the Supreme Court. However, it is not yet clear if such an appeal will follow.
Before dwelling on the implications of the SEC’s actions, it is important to understand the origin of the dispute.
Grayscale Bitcoin Spot ETF is NOT a given
In detail, Grayscale, the largest crypto investment vehicle globally, applied for a Bitcoin spot ETF in 2022, but the SEC denied the claim. Grayscale’s senior legal strategist, Donald B. Verrilli Jr., retaliated by suing the regulator and claiming the agency had insufficient grounds for dismissing the Bitcoin Spot ETF application.
On Aug 29, 2023, US Court of Appeals Circuit Judge Neomi Rao ruled in Grayscale’s favor.
The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.
Circuit Judge Neomi Rao said in the judgment.
Court ruling in favor of Grayscale.
Notably, the US regulator has not yet approved a crypto-based spot ETF but has allowed futures-based ETFs. In detail, a spot ETF allows investors exposure to the real-time prices of an asset. Conversely, a futures ETF exposes traders to the price movements of futures contracts.
The regulator has argued that Bitcoin spot ETFs could be susceptible to market manipulation, given that BTC trades on “unregulated” exchanges. The court disagreed with the SEC, stating that Grayscale’s Bitcoin ETF was “materially similar” to the Bitcoin futures ETF.
However, what does the Judge’s decision actually mean? The court granted Grayscale the RIGHT TO APPLY for a Bitcoin spot ETF. Technically, the investment company has not been granted permission to run an ETF circumventing the SEC. Thus, it’s time to evaluate the implications of the agency’s possible appeal.
The SEC might not need to appeal to the Supreme Court
Since the court’s ruling, the SEC has not publicly disclosed its next line of action regarding the lawsuit. However, if they don’t appeal, the case will be closed in the next seven days.
Fox Business Journalist Eleanor Terrett commented that after the case is closed, Grayscale would start working with the SEC to approve the fund’s conversion. Terrett also mentioned that Grayscale would work with two SEC departments – Division of Corporation Finance and Trading and Markets (T & M).
Even so, some experts believe the SEC will not retaliate at this point because the court’s decision was clear enough. Moreover, the regulator technically has the authority to drag the dispute further if it wants to find fault with other aspects of the application.
As of mid-October, the SEC has several spot ETF decisions to make in the coming weeks. Besides Grayscale, other top US-based financial giants filed applications for a similar product, including BlackRock and Fidelity Investments.
Additionally, a former Blackrock official asserted that the agency would likely approve several such applications simultaneously.
Bitcoin spot ETF filings schedule. Source: James Sayffart on Twitter.com
The first deadline will come on Oct 16 regarding the BitWise application. The decision on BlackRock, VanEck, WisdomTree, Fidelity, and Invesco will follow the next day.
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