Grayscale won the case against the US Securities and Exchange Commission ( SEC ). The court annulled the regulator's decision regarding the company's BTC flagship fund. According to commentators, the case may be relevant for other applications for approval of bitcoin ETFs.
On August 29, the United States Court of Appeal for the District of Columbia recognized that the SEC had to reconsider Grayscale's request to transform the Bitcoin Trust into an ETF spot fund. The first asset manager application was rejected by the regulator on June 29, 2022. In response, Grayscale sued the SEC.
In the case of regulators, the company claimed that the Commission violated the Stock Exchange Act by discriminating against issuers. Grayscale argued that by rejecting subsequent applications for the ETF spot fund for bitcoin, SEC operates “ arbitrarily and capriciously ”, especially considering its approval of ETFs for BTC futures.
Grayscale's victory has broad implications for the entire cryptocurrency market. The SEC will have to re-bend the company's request and may have come up with better arguments for its rejection. This strengthens the negotiating position of a number of companies that this year, they submitted applications for registration of ETF's own spot funds for bitcoin, recognized by the market as the Holy Grail.
To date, the SEC has rejected all ETF registration applications that provide investors with exposure to the BTC spot market, citing the risk of manipulation. At the same time, the Commission approved some funds related to bitcoin futures, arguing that their listing market, the Chicago Mercantile Exchange, provides investors with greater protection. The regulator ignored the fact that BTC spot and futures markets are 99% correlated.
In their verdict of August 29, judges criticized the SEC. In support of the decision, they stated that the “ regulator lowered the ” standards, “ made unexplained decisions ” and “ failed to properly present its arguments ”. In particular, it was considered that the Commission did not provide sufficient reasons for unequal treatment of ETF futures and spot bitcoin funds.
In response to information about Grayscale's judicial success, the bitcoin rate increased by 6.5 percent. Most cryptocurrencies started up with him. According to Coinglass data, the liquidation of short positions with leverage has reached USD 117 million in the last 24 hours.
Bitcoin course - August 2023
Why ETF for bitcoin matters
The court's decision is important for the cryptocurrency market for two reasons. First, it opens the door to entering the US ETF exchange for bitcoin. They are important because they increase the potential number of investors on the cryptocurrency market, giving them tools to do so in a more traditional and regulated way. According to CoinDesk, this would mean an inflow of billions of dollars.
Secondly, the verdict showed that, as was the case in recent ruling in the Ripple case, SEC does not have the power over the cryptocurrency market as he would like. Despite its ambitions, the regulator did not achieve the highest position on it. There is a dispute in the US about which agency has jurisdiction to regulate the cryptocurrency market. In addition to the SEC, CFTC also applies for its piece of cake.