On the evening of August 29, local time, affected by Grayscale's winning lawsuit against the US Securities and Exchange Commission (SEC), Bitcoin briefly exceeded $28,000, Ethereum exceeded $1,700, and the overall market rose 6.48%, and the crypto market ushered in a "big reversal" market. But because the news came too suddenly, many Air Forcers have been exposed before they can react. So, what does it mean for Grayscale to win a lawsuit, and how will it evolve next?
In June 2022, the US SEC rejected Grayscale's application to convert its largest futures fund GBTC into a Bitcoin spot ETF on the grounds of market manipulation, and continuously gave the green light to ETFs based on Bitcoin futures, causing Grayscale's dissatisfaction.
At the March case hearing, the justices questioned the SEC about its decision and appeared to support Grayscale's argument that the underlying markets for spot bitcoin and bitcoin futures are equally at risk of fraud and manipulation. Yesterday, a panel of the Court of Appeals for Washington, D.C., overturned the SEC's decision to block the ETF, arguing that the SEC's rejection of Grayscale's issuance of a Bitcoin spot ETF was unreasonable, and asked it to reprocess Grayscale's request.
The court said, "The SEC's rejection of Grayscale's proposal was arbitrary and capricious in that it failed to explain its different treatment of bitcoin futures ETFs and spot ETFs." In the absence of a coherent explanation, this different treatment of similar products is illegal. Therefore, we accede to Grayscale's review request and revoke the SEC's order. ”
The market reacted enthusiastically to the news, with Grayscale Bitcoin Trust (GBTC) rising nearly 17% in secondary trading today to $20.56, with AUM increasing to $17.4 billion from $16.2 billion the day before. The company said in a statement that the decision was "a landmark step forward for U.S. investors." While this doesn't mean that GBTC will automatically convert to an ETF, it does bring Bitcoin spot ETF approval one step closer.
In the original text issued by the court, the arguments between the parties focused on whether there was a clear difference between bitcoin derivatives and spot, and why the SEC would reject spot ETFs even if they passed bitcoin futures ETFs.
The SEC believes that Grayscale holds 3.4% of the bitcoin in circulation, and if it is allowed to participate directly in the exchange's spot market, tens of billions of bitcoins will seriously impact the current market price system. However, the derivatives market is subject to more and mature regulatory restrictions, and the SEC set a series of test conditions, and finally concluded that spot ETFs could not pass the regulatory framework.
Grayscale believes that the SEC's arguments cannot be justified, specifically in the following points: Grayscale proves that both Bitcoin spot and bitcoin futures products are anchored by spot market prices, and it can even be considered that the price correlation between bitcoin spot ETF and CME futures is 99.9%; Grayscale's holdings are not high compared to Bitcoin's daily trading volume of $45 billion, and the value of Bitcoin held by Grayscale has increased by about $7 billion in two years, but the value of Bitcoin has increased by about $721 billion in the same period, and Grayscale is inoperable or significantly affects the market; The SEC's pre- and post-review criteria vary, with bitcoin futures trading volume in CME growing from $737 million at the end of 2017 to $44.6 billion at the end of 2021. If futures products are considered to affect the market, then spot ETFs should not be considered to affect the market, because the spot market is more liquid and deeper than the futures market.
Based on the above criteria, the judge found that the SEC's argument was untenable, especially under the premise of passing bitcoin futures products, and in terms of review standards, bitcoin spot and futures were not significantly different, so the judge asked the SEC to re-examine the grayscale application.
Still, whether the SEC will approve a Bitcoin spot ETF remains uncertain. The subsequent SEC has 45 days to submit a full hearing, meaning the case is heard by all the judges in the court (17 here), rather than by a panel of just 3 judges, as was the case with this initial decision. A SEC SPOKESPERSON HAS SAID THAT THE SEC IS REVIEWING THE COURT'S RULING ON THE GRAYSCALE BITCOIN ETF TO DETERMINE THE NEXT STEPS.
In addition, in terms of market conditions, there have been a number of bitcoin spot ETFs waiting to be applied recently, including Bitwise, BlackRock, VanEck, WisdomTree, and Invesco, and according to the schedule, the SEC will respond to these applications by the end of this week, and the SEC also delayed the application of 21Shares and ARK Investment Management in early August. Now Grayscale's sudden victory has made the weekend confusing.
While Grayscale's aggressive ruling to convert its Grayscale Bitcoin Trust Fund (GBTC) into a spot Bitcoin ETF sent bitcoin up more than 7%, Arca Chief Investment Officer Jeff Dorman said that the world's largest digital asset will require a "significant" catalyst to break through the limits of the range. He warned that it is "too early" to see the ruling as a panacea for Bitcoin's continued rise, stressing that "real follow-up will only happen when BlackRock and other companies start really promoting Bitcoin in their filings." ”
As James Seyffart, an analyst at Bloomberg ETFs, said that if the SEC wants to block a Bitcoin spot ETF listing, they may have two main options. The first is that they will have to delist the Bitcoin futures ETF. The court's order basically means that while allowing Bitcoin futures ETFs to list, the argument of market manipulation can no longer be used to reject spot ETFs. The second possible option is to reject a Bitcoin spot ETF listing based on grounds that have never been used before, which could be related to the custody or settlement of Bitcoin.
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All in all, bitcoin futures are enough to meet the needs of American investors to participate in the crypto market, and at the moment when US regulators are hitting exchanges and tokens, there is undoubtedly a contradiction in rushing through bitcoin spot ETFs, and it will still take time to see how the SEC will ultimately decide under the order of the court.