SEC Chair Gary Gensler mocks putting a gun to his head in response to a “Blazing Saddles” reference by Rep. Emanuel Cleaver, D-Mo., during the House Financial Services Committee hearing titled “Oversight of the Securities and Exchange Commission,” in Rayburn Building on Tuesday, April 18, 2023.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
The case for Bitcoin ETFs could strengthen as Grayscale Investments notches a win against the SEC.
In July 2022, the investment firm launched into a legal battle against the regulator after their application to convert their Grayscale Bitcoin Trust into an ETF was denied. Today, August 29, the District of Colombia Court of Appeals ruled in favor of Grayscale Investments in their case against the regulator.
Grayscale initially applied for the conversion after the SEC approved Proshares’ futures-based Bitcoin ETF in October 2021. Their Bitcoin Trust (GBTC) was launched in 2013, and had established itself as a vehicle for investors to enter into cryptocurrency exposure within a familiar environment. However, the petition was denied due to concerns about possible market manipulation and investor protection.
For the Circuit judges, this explanation was not enough, and they called the regulatory treatment of the product “unlawful”.
“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” Circuit Judge Neomi Rao wrote on behalf of the court.
Applications for seven future-based ETFs have been approved since 2021, while over 30 spot bitcoin ETFs have been denied.
Moving the Spot Bitcoin ETF Mountain
The win for Grayscale comes at an opportune time when Bitcoin ETFs are firmly in focus.
Despite the 100% denial rate for spot bitcoin ETFs, hope was rekindled when Blackrock submitted its own application in June. With only one of its 576 ETF applications being rejected, others in the space felt the move would nudge the SEC toward approval.
Earlier in the year, SEC Chairman Gary Gensler remained unmovable, stating that the path forward for bitcoin ETFs was “well-trodden”.
“We have tens of thousands of registrants that properly, in good faith, comply, they register, they make the proper disclosures,” Gensler said to CNBC in February. “It’s time for this group to do so.”
The statement echoes the many other of Gensler’s claims that guidelines are already in place for cryptocurrency compliance. Despite the crypto industry calling for clearer guidelines in the regulation of many areas related to the sector, the SEC lead has remained steadfast in his view that such guidelines already exist, opting for a wave of, at times, contradictory statements and enforcement actions.
However, the judge’s ruling, siding with Grayscale, is one of many recent setbacks undermining Gensler’s stance.
The ruling is “a monumental step for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper,” said Grayscale, adding that they will review the next steps with the SEC.
While the court’s decision doesn’t automatically approve the Bitcoin ETF, many say it’s a step in the right direction.
“It virtually guarantees they will approve BlackRock and Fidelity,” said Dave Weisberger, CEO of CoinRoutes, told CNBC. “Grayscale may need to refile, but they will almost certainly be approved as well.”
Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.
Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.