The Impending SEC Decision on Grayscale and Implications for Bitcoin ETPs

The Impending SEC Decision on Grayscale and Implications for Bitcoin ETPs

Bloomberg’s Senior ETF Analyst, Eric Balchunas, has announced that the Security and Exchange Commission (SEC) could reveal a significant decision regarding Grayscale Investments as early as today, August 15, or by the latest, this Friday, August 18. This decision is expected to have significant implications for the approval of Bitcoin exchange-traded products (ETPs), with specific attention on Blackrock’s recent filing, along with many others who have also included Coinbase as a partner under a “surveillance sharing agreement.”

Grayscale’s Challenge and Ongoing Dispute

Grayscale Investments has challenged the SEC’s rejection of its Bitcoin ETP application, arguing for fair treatment and consistency across all issuers. The controversy arises from the SEC’s acceptance of leveraged Bitcoin futures ETFs while rejecting spot Bitcoin ETF applications, a decision Grayscale considers inconsistent and arbitrary. The pending announcement today signifies a crucial turning point in this ongoing dispute.

Grayscale’s contention with the SEC stretches beyond its immediate interests and has broader implications for the entire crypto industry. Initially, the firm filed to list the Grayscale Bitcoin Trust (GBTC) for trading on the NYSE Arca exchange, an application that the SEC rejected in 2022. Grayscale responded with a legal challenge, asserting that the SEC’s approval of Bitcoin futures ETFs while denying spot Bitcoin ETF applications demonstrates an apparent policy inconsistency.

Potential Key to SEC Approval

Several asset managers, including BlackRock, ArkInvest, and VanEck, have recently submitted spot Bitcoin ETP filings to the SEC. These filings outline their intention to establish surveillance-sharing agreements with crypto exchange Coinbase, a move that some believe could be the key to gaining SEC approval. However, Grayscale insists that surveillance sharing alone with an unregulated platform like Coinbase is insufficient to meet the criteria for approving a Bitcoin ETP, based on prior indications from the SEC.

Bloomberg’s senior legal analyst states that there is a 70% chance of the final decision on Grayscale’s case being favorable. Nonetheless, he advises stakeholders to prepare for any outcome, emphasizing the scarcity of certainty in the realm of digital assets. The unpredictability inherent in the crypto industry demands caution and adaptability from participants.

Intriguingly, Balchunas shares a post from finance lawyer Scott Johnsson, shedding light on the potential timeline for Grayscale’s case. Johnsson notes that 94% of cases argued in March 2021 and 2022 received decisions within 160 days of oral arguments. Given that 160 days have passed since Grayscale’s oral argument in March 2023, it suggests that a verdict is imminent.

Johnsson also mentions the typical procedure of DC law clerks cycling in and out in August, prompting judges to clear their caseloads before the new incumbents arrive. Considering this pattern, he speculates that a decision may be expected in August. Moreover, he highlights that all March 2022 cases argued before the DC Circuit were decided within 154 days, with only one outlier at 170 days. This further reinforces the expectation of an impending decision.

As the SEC’s decision on Grayscale’s case eagerly awaits, these observations offer valuable context for the likely timing, demonstrating how legal norms and procedural routines can inform our expectations within the ever-unpredictable crypto sphere. The outcome of this decision will undoubtedly impact the future landscape of Bitcoin ETPs and set important precedents for issuers and regulators alike. Market participants must watch closely as the verdict is imminent.


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