Key Takeaways:
- Grayscale received a favorable ruling in its lawsuit against the SEC.
- Crypto market participants celebrated the news.
- However, the SEC might resort to canceling futures ETF applications
NEW DELHI (CoinChapter.com) — Crypto asset manager Grayscale won a landmark legal battle against the US Securities and Exchange Commission on Aug 29. The news resulted in hyped-up crypto proponents entering the market in droves, causing the market cap to rise by over 5%.
The crypto market proponents, in general, saw the win as an indicator that a Bitcoin ETF might be on the horizon.
Crypto analyst Miles Deutscher claimed that the court order would allow Grayscale to convert its futures Bitcoin ETFs into spot ETFs.
But the court ruling did not say anything about that.
What The Court Said
The federal appeals court in Washington DC ruled that the SEC was wrong in rejecting Grayscale’s application to convert its flagship product, Grayscale Bitcoin Trust, into an exchange-traded fund.
In detail, the Grayscale lawsuit focused on whether the firm was allowed to offer a spot Bitcoin ETF. A spot Bitcoin ETF allows investors exposure to the real-time prices of Bitcoin. On the other hand, a Bitcoin futures ETF exposes traders to the price movements of Bitcoin futures contracts.
The SEC has previously allowed Bitcoin futures ETFs but has held its ground against spot ETFs. The regulator has argued that Bitcoin spot ETFs could be susceptible to market manipulation, given that BTC trades on ‘unregulated‘ exchanges.
However, the court disagreed with the SEC, stating that Grayscale’s Bitcoin ETF was “materially similar” to the Bitcoin futures ETF.
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
Pro-BTC litigator Joe Carlasare speculated that the SEC might respond to the ruling by “reversing prior orders approving the futures ETFs.”
The Way Forward For Grayscale And The SEC
The SEC now has 45 days to abide by the decision, ask the federal appeals court to review it, or take an appeal to the Supreme Court. Grayscale would need to file a new application for its ETF. However, the SEC can still reject the application on other grounds.
Furthermore, the agency might cancel Bitcoin futures ETFs instead of approving new spot products. The court had concluded that the spot and futures ETFs were similar, meaning that the SEC might reject ETF applications to enforce its will.
The ruling puts SEC chair Gary Gensler in a tough spot since the regulator currently has ongoing lawsuits against crypto exchanges Coinbase and Binance.
