Chris Curl,
Editor
Sept. 7, 2023
In a significant development, a federal appeals court issued a verdict in late August mandating the Securities and Exchange Commission (SEC) to reassess Grayscale's bid to convert its Bitcoin trust into an exchange-traded fund (ETF).
This decision challenges the SEC's long standing opposition to endorsing listed spot market investments for the primary digital asset, while allowing similar offerings for futures.
Judge Neomi Rao, composing the court's decision, stated that the SEC's rejection of Grayscale's proposal lacked clear reasoning, as the agency had treated similar products differently.
The SEC's reasoning behind differentiating Grayscale's Bitcoin ETF application from futures-based funds it previously greenlit remain unclear. While futures prices reflect those of the underlying spot market, the SEC struggled to convincingly argue that the spot market was potentially riskier for investors.
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The SEC has been increasingly hostile toward cryptocurrency since Gary Gensler took the reins. Most of their legal arguments are weak and smart judges have been pushing back.
"This marks a significant stride for American investors, the Bitcoin ecosystem, and proponents of Bitcoin exposure seeking the safeguards of an ETF structure," remarked Jennifer Rosenthal, Grayscale's spokesperson.
The ruling pointed out that the SEC has been presented with multiple proposals for listing Bitcoin investment products on national exchanges, all of which were denied.
However, BlackRock's application to list a spot Bitcoin ETF in June signaled that the major asset manager anticipated overcoming the SEC's opposition. Following suit, Fidelity and other fund providers presented similar proposals.
Grayscale submitted its application to convert its Bitcoin Trust (NASDAQ: GBTC) into an ETF in October 2021, but it was denied on grounds of lacking evidence that it had implemented adequate safeguards against market manipulation or other misdeeds. Almost immediately, the company lodged an appeal with the federal appeals court in the District of Columbia, seeking a review of the SEC's denial.
Grayscale argued that the SEC acted inconsistently and arbitrarily by granting approval to "materially similar" Bitcoin futures ETFs while denying its proposal. The appeals court ruled in favor of Grayscale, asserting that the company had demonstrated that its proposed Bitcoin ETF closely resembled futures-based exchange-traded products and should have been treated similarly.
Judge Rao noted, "Despite the evident similarities, the Commission rejected Grayscale's proposed Bitcoin ETF and endorsed two Bitcoin futures ETFs…The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products.”
Importantly, this ruling does not compel the SEC to grant approval to Grayscale's application; rather, it necessitates a reevaluation of the application.
In response to this news, the value of Bitcoin rose, and Grayscale's trust reached $19.87 on Tuesday afternoon after the court's verdict. This marked a more than twofold increase from its January price and an even greater increase since I first wrote about Grayscale’s discount.
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This discount is at its narrowest since May 2022, and is still a good buy in my opinion. It’s only a matter of time before these ETF applications get approved, opening the floodgates for institutional investment in Bitcoin.
This will be the catalyst for a new crypto bull market.
I intend to profit just like I did in the last one. See what cryptos I’m buying now.
Chris Curl
Editor, Daily Profit Cycle