(qlmbusinessnews.com Fri, 1st Sept, 2023) London, UK —
Gary Gensler and his team at the Securities and Exchange Commission (S.E.C) are witnessing the tightening grip of uncertainty around their crusade against crypto. The tables seem to be turning in courtrooms, and market sentiment is reflecting this shift.
Bitcoin and Ethereum have both surged by 5% since the week's outset, predominantly owing to a pivotal court ruling on Tuesday that we delve into later on.
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A landmark decision appears to bring us ever closer to a spot Bitcoin exchange-traded fund (ETF) – a development that could open the floodgates, propelling crypto asset valuations upward.
In this report, we dissect this week's court verdict and explore how it might spell the potential downfall of the S.E.C in its battle against cryptocurrencies.
Courtroom Setback
For those out of the loop on the Grayscale versus S.E.C case, here's a recap:
Grayscale Bitcoin Trust (GBTC) ranks as the largest Bitcoin trust, boasting $17.4 billion worth of Bitcoin under its stewardship.
Due to its structural intricacies, GBTC's share price can diverge from the underlying asset's value. Unlike ETFs, GBTC doesn't employ the same creation/redemption mechanism to harmonize share prices with underlying assets.
This structural mismatch led GBTC's share price to plummet to a staggering 49% discount to its net asset value (NAV) last year. This decline, on top of the already significant dip in crypto prices, dealt a substantial blow to GBTC holders.
To address this conundrum, Grayscale pursued converting the trust into an ETF. This conversion would facilitate share creation or redemption, preventing GBTC from trading at a premium or discount to its NAV.
However, the S.E.C denied Grayscale's application to convert its Bitcoin trust into a spot Bitcoin ETF last year. Consequently, Grayscale escalated the matter to the court.
Meanwhile, the S.E.C granted approval to ProShares, VanEck, Global X, and other entities for a Bitcoin futures ETF.
The S.E.C argued that a spot Bitcoin ETF could be more susceptible to market manipulation and lacked the oversight prevalent in a futures market.
This week, a federal appeals court sided with Grayscale, ordering the S.E.C to reverse its rejection of Grayscale's ETF filing.
In its ruling, the panel of judges on the court deemed the S.E.C's decision “arbitrary and capricious.” This stemmed from the approval of Bitcoin futures ETFs while rejecting a spot Bitcoin ETF.
To clarify, this ruling doesn't translate to approval for Grayscale's trust-to-ETF conversion. It signifies the court's judgment that the S.E.C erred in rejecting the application based on its rationale.
This development constitutes a significant stride toward launching a spot Bitcoin ETF.
The court's endorsement of Grayscale revolves around the notion that its proposed spot Bitcoin ETF would be “materially similar” to Bitcoin futures ETFs. Consequently, it should possess comparable potential to detect fraudulent or manipulative activities in the Bitcoin market.
Consequently, the S.E.C now faces the task of reassessing the Grayscale application and other ETF submissions in light of this ruling.
Even Jay Clayton, the former S.E.C Chairman, expressed that declining a spot Bitcoin ETF at this juncture would be challenging. He cited the Bitcoin spot market's “similar efficacy to the futures market” and the S.E.C's previous endorsement of a futures Bitcoin ETF.
However, this is not the sole setback the S.E.C has encountered in the realm of crypto.
In July, the S.E.C suffered a loss in a lawsuit against Ripple, wherein it alleged that the founders had peddled unregistered securities by selling their XRP tokens.
The judge determined that XRP qualifies as a security when sold to institutional investors but not when exchanged publicly on platforms like Coinbase.
This ruling resonated across the crypto landscape, as the S.E.C has sought to classify almost all cryptocurrencies, except Bitcoin, as securities. This verdict counters that stance.
As Gary Gensler and the S.E.C experience successive courtroom defeats, their antagonism towards Wall Street and politicians deepens.
The S.E.C Faces Mounting Pressure
Wall Street is channeling tens of millions of dollars into constructing an infrastructure poised to facilitate investments totaling billions within the crypto realm.
Furthermore, Republican members of the House Financial Services Committee have vocally criticized Gensler and the S.E.C for their handling of crypto space operators. They've also accused the S.E.C of a lack of transparency regarding operational expectations for firms in this sector.
Warren Davidson, Republican Representative from Ohio, went so far as to call for Gensler's removal due to an alleged abuse of power.
With mounting political pressure and Wall Street's growing discontent, it appears to be only a matter of time before Gensler and the S.E.C make concessions.
The recent court ruling presents a convenient opportunity for them to shift course after years of being at odds with the prevailing direction.
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As the week draws to a close, six spot Bitcoin ETF decisions are pending, including submissions from BlackRock, VanEck, WisdomTree, and Invesco. Delays in these rulings by the S.E.C are likely.
However, the S.E.C's stalling tactics can only persist for so long. The Grayscale victory suggests that a spot Bitcoin ETF in the United States is, inescapably, on the horizon.
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