A court ordered the SEC to review Grayscale Investments’ request for a bitcoin ETF, posing a challenge to SEC Chair Gary Gensler’s regulation efforts.
The recent decision led to a surge in Bitcoin-related assets. Traders hope it will increase access to cryptocurrencies. Coinbase Global saw a 15% increase, and bitcoin futures rose 7%.
A judge’s ruling criticized the SEC for denying Grayscale’s ETF proposal, deeming it arbitrary and inconsistent with previous approvals of similar financial products. Notably, this decision was unanimous among the three-judge panel.
The U.S. Court of Appeals rejected Grayscale’s bid to transform its bitcoin trust into an ETF. The reasoning cited the lack of regulation in bitcoin’s spot markets and the potential for market manipulation. This setback challenges Gensler’s strategic approach to overseeing the crypto market.
Grayscale sees the court’s ruling as a massive win for US investors and Bitcoin. They are dedicated to promoting Bitcoin while providing ETF protection and are now reviewing the decision.
A spokesperson for the SEC indicated that the agency is assessing the court’s ruling to determine the appropriate course of action. Potential options include appealing to the Supreme Court, reconsidering Grayscale’s application, or making a fresh decision based on alternate justifications.
The SEC faces a unique challenge in regulating Bitcoin due to its classification as a commodity rather than a security. This distinction complicates the creation of Bitcoin spot ETFs.
Gensler, a seasoned policy maker, has been focused on enforcing federal regulations within the cryptocurrency market. He holds the view that most cryptocurrencies are unregistered securities. He has reinforced the agency’s legal team to bolster the SEC’s crypto enforcement.
The SEC has taken legal action against Coinbase and Binance. The SEC lost a court case against Ripple Labs but plans to appeal it due to its potential impact on similar topics.
Grayscale had a legal dispute with the SEC over their ETF application for the Grayscale Bitcoin Trust. They argued that the SEC’s approval of bitcoin futures ETFs made their dismissal unfair. Many investors supported Grayscale.
Presently, the only SEC-approved bitcoin ETFs are based on futures contracts, trading on derivatives exchanges overseen by the Commodity Futures Trading Commission (CFTC).
Investors in the cryptocurrency space are keenly awaiting spot bitcoin ETFs due to the associated benefits. While futures-based ETFs come with concealed costs, spot ETFs are sought after for their simplicity.
The value of Bitcoin hinges solely on investor demand, which has recently been impacted by market instability.
Crypto enthusiasts have high hopes for the introduction of bitcoin ETFs, anticipating increased investor participation. These ETFs would make investing in bitcoin as straightforward as purchasing shares of public companies or mutual funds.
In June, asset management giant BlackRock initiated the process for a spot bitcoin ETF. This spurred a fresh wave of applications and speculation regarding a potential shift in the SEC’s stance. Notable players like Fidelity and Invesco have also submitted applications.
GBTC, launched in 2013, serves as an investment vehicle that acquires bitcoin and issues shares to investors, offering exposure to the cryptocurrency without the complexities of direct ownership. Holding $16.2 billion of bitcoin, GBTC levies a 2% annual management fee.
Previously the sole SEC-registered method for investing in bitcoin, GBTC now faces competition from a similar product approved by the SEC in 2021. This development led to GBTC’s shares trading at a discount of up to 49%.
GBTC’s status as a trust limits its ability to sell bitcoin to fulfill redemption requests, resulting in share price declines. A conversion to an ETF structure could address this issue and eradicate the discount factor.
When asked about the future of bitcoin ETFs, Gensler emphasized a well-trodden path forward. His commitment lies in encouraging responsible and transparent operations within the crypto market.