A digital currency-focused asset manager and a federal regulator are pondering what's next after a federal appellate court weighed in on this battle in the decade-long fight to create bitcoin ETFs.
| David Vincent "Dave" LaValle|
Grayscale Investments, LLC
Global Head of ETFs
An Appeals Court Sides With Grayscale
Yesterday morning, a three-judge panel of the United States Court of Appeals For the District of Columbia Circuit
ruled unanimously in favor of Grayscale Investments
] in its lawsuit against the U.S. Securities and Exchange Commission (SEC
). In Grayscale Investments, LLC v. Securities and Exchange Commission
, the court effectively ordered the SEC staff to re-review Grayscale's proposal to transform its $17.373-billion-AUM (as of yesterday) flagship '34 Act spot bitcoin fund, the Grayscale Bitcoin Trust
(GBTC), into an ETF listed on the NYSE Arca
The 21-page opinion
by Judge Neomi Rao
, hinges on the difference in the SEC's treatment of Grayscale's proposal and the SEC's treatment of another pair of proposals, around the Teucrium Bitcoin Futures Fund
and the Valkyrie XBTO Bitcoin Futures Funds
. The regulatory agency approved the listing of the latter two bitcoin futures exchange traded products (ETPs) (last April, on the NYSE Arca for the Teucrium fund, and last May, on the Nasdaq, for the Valkyrie fund), while it denied Grayscale's proposed transformation.
"The denial of Grayscale's proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products," Rao writes:
To avoid arbitrariness and caprice, administrative adjudication must be consistent and predictable, following the basic principle that similar cases should be treated similarly. NYSE Arca presented substantial evidence that Grayscale is similar, across the relevant regulatory factors, to bitcoin futures ETPs. The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs, but not Grayscale's proposed bitcoin ETP. In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. We therefore grant Grayscale's petition for review and vacate the Commission's order.
What's Next For the SEC and Grayscale?
Grayscale's victory, and the planned transformation of GBTC, is not yet certain, despite the ruling. Perhaps the SEC will appeal its loss, to the full circuit court or even to the United States Supreme Court. The SEC has 45 days to appeal, ETF.com notes
"We are reviewing the court's decision to determine next steps," an SEC spokesperson tells MFWire
Yet the Grayscale team trumpets
yesterday's ruling as "a monumental step forward for all who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper." Michael Sonnenshein
, CEO of Grayscale, calls the ruling "a historic milestone for American investors [and] the Bitcoin ecosystem."
"It's incredibly exciting that we are one step closer to making a U.S. spot Bitcoin ETF a reality," Sonnenshein states
"We are incredibly grateful to our legal teams at Munger, Tolles and Olson
and Davis Polk and Wardwell
, and will be working with the SEC on next steps to bring GBTC to NYSE Arca as a spot Bitcoin ETF," states Craig Salm
, chief legal officer at Grayscale.
ETF Insiders and Cryptocurrency Investors Cheer the Ruling
Yesterday's ruling already has some vocal fans in the ETF and cryptocurrency spaces. Terry Norman
, founder of Blue Tractor Group LLC
(which specializes in helping active asset managers fit their strategies inside of ETFs without revealing too much), calls yesterday's ruling "a breath of fresh air
, chief operating officer of AltTab Capital
(a crypto-focused hedge fund), lauds the judges for seeing "the obvious correlation between Bitcoin futures and spot price."
"Products like Grayscale's holdings have converted to ETFs in other commodity markets, and it makes no sense to treat crypto differently," Moritz states. "Rules for financial markets need to be based on data, not arbitrary and capricious sentiment toward a legitimate and growing asset class."
Have the Bitcoin ETF Floodgates Opened?
The push to put bitcoin inside U.S. ETFs goes back
, as does the pushback against
. Several bitcoin-related
funds and ETFs
in the last several
years. And Grayscale has even prepped other ETFs
Then in June of this year, new spot Bitcoin ETP filings (or re-filings) were been submitted by a host of firms, including Ark
, and even Valkyrie
, with reports of at least some SEC pushback
. At least three stock exchanges — Cboe, Nasdaq, and NYSE — are involved with these planned products, and Coinbase would be the funds' crypto trader
Perhaps the SEC's defeat (if it stands) in the Grayscale case could mean that SEC approval is also becoming more likely (and more imminent) for some of these other would-be spot bitcoin ETPs. Our sister publication CeFiWire notes
that the deadline for the SEC's Bitwise decision is this Friday (i.e. in two days) and that decisions are due over the weekend for the applications from BlackRock, Invesco, WisdomTree, Van Eck, Valkyrie, and Wise. The SEC staff would need to decide to either approve, deny, or delay each of the proposals.
A British crypto ETP provider's chief predicts that other bitcoin ETP approvals are less than a year away, pointing to significant "pent up institutional and retail demand in the US."
"Despite the inevitable SEC appeal, to our mind there is no doubt now, spot BTC ETFs are coming to the US," states Tim Bevan
, CEO of ETC Group
. "We don't believe the SEC will act as kingmaker and the most likely outcome is a block approval of applications that meet requirements, probably in Q1'24."
An executive from an ETF-watching research firm offers a similar take.
"Grayscale's win is a huge victory for all potential spot bitcoin ETFs — not just for Grayscale," states Roxanna Islam
, associate director of research at VettaFi
. "While we still have to wait and see how the SEC handles its execution, it is likely that they will have to approve Grayscale's spot ETF along with other pending spot bitcoin ETF filings."
Neil Anderson, Managing Editor
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