No decision expected today on Grayscale’s challenge to SEC over Bitcoin ETF conversion
Despite rumors, there will be no decision today, Aug. 18, Grayscale’s lawsuit against the Securities and Exchange Commission (SEC) over their denial of a spot Bitcoin Exchange-Traded Fund (ETF) conversion,
While some had hoped for a decision today, that idea was dispelled by Bloomberg Intelligence Analyst James Seyffart in an Aug. 18 tweet.
The potential outcome of the lawsuit, whenever it’s decided, could set a precedent for the future of digital asset transactions.
Grayscale, the global leader in digital currency asset management, has been in a legal battle for months, challenging the SEC’s decision to prevent the company from converting its Bitcoin investments into a spot ETF.
The core of Grayscale’s argument centers on what they perceive as unfair treatment towards spot Bitcoin ETFs. This lawsuit has sparked discussions about the SEC’s role in regulating and overseeing cryptocurrencies.
Conversely, the SEC stands firm in its stance, arguing that their decision is grounded in the necessity to shield investors from the unpredictability and possible market manipulation linked with cryptocurrencies.
Recent history of Grayscale’s ETF issues
In Oct 2022, Grayscale Investments, a Digital Currency Group (DCG) subsidiary, opened a legal action against the SEC, arguing against the regulator’s discriminatory practice of allowing Bitcoin Futures ETFs but not a spot ETF.
Grayscale had initially applied to convert its Bitcoin Trust (GBTC) into an ETF, which was rejected by the SEC, citing concerns over market manipulation and the role of Tether (USDT) in the broader crypto ecosystem.
This rejection spurred Grayscale to challenge the SEC’s decision, citing “special harshness” in the SEC’s ruling. Grayscale argued that approving several Bitcoin Futures ETFs was inconsistent with rejecting a spot ETF product, as both derive pricing “based on overlapping indices” and are “subject to the same risks and protections.”
In March 2023, during the first appeals hearing, judges questioned the SEC’s logic for rejecting Grayscale’s spot Bitcoin ETF application. The SEC’s lawyer, Emily Parise, was asked by Judge Neomi Rao to explain why Grayscale was wrong in their argument, wherein they provided substantial information on how the spot and futures markets function with each other.
Fast forward to July 2023, Grayscale’s GBTC narrowed its discount to its net asset value, outperforming Bitcoin’s value. It witnessed a rise of nearly 43% in the past month compared to Bitcoin’s 17% gain during the same timeframe. This improved performance was attributed to BlackRock’s application for a Bitcoin spot ETF and similar applications from other traditional financial institutions.
As of Aug.15, 2023, Bloomberg’s Senior ETF Analyst, Eric Balchunas, indicated that a decision concerning the Grayscale lawsuit against the SEC could be revealed today, Aug. 18. The outcome of this decision could have significant implications for the approval of Bitcoin exchange-traded products (ETPs).
The legal wrangling between Grayscale and the SEC presents a pivotal moment in the evolution of the digital assets market, with the potential to influence future regulatory guidelines and practices.
Stay tuned for further updates on this landmark decision.
