The Bitcoin ETF
Thursday August 31, 2023 - Issue # 50
(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
A bit of a presumptuous title, I know. I’m excited, okay!? It’s been nearly a decade since the SEC has rejected a Bitcoin ETF and I believe we’re *potentially* days away from getting an approval.
Tuesday, Grayscale achieved a huge victory over the U.S. Securities and Exchange Commission (SEC), marking a historic moment in the world of Bitcoin/crypto regulation. This victory, while not an outright approval of Grayscale's proposed Bitcoin exchange-traded fund (ETF), is a massive deal that cannot be understated.
It's a very rare occurrence for a federal circuit court to challenge the actions of a regulatory agency, claiming they have acted arbitrarily and capriciously (don’t worry, I got you - capriciously: in a way that changes suddenly and unexpectedly). However, the DC Circuit Court's decision to reject the SEC's stance on Grayscale's ETF proposal has sent shockwaves through financial world. The SEC was just dealt another significant blow to its credibility and after they just took a major L in the case of Ripple, its recent track record against the digital asset space is frankly embarrassing. They face Coinbase next and I think they’d be wise to drop that case before they risk another loss.
For the past decade, the SEC has consistently denied proposals for spot Bitcoin ETFs, citing concerns about “preventing fraudulent and manipulative practices.” Grayscale's case has been pivotal in challenging this argument. The court’s ruling shut down the SEC's claim that Grayscale's proposal wasn't doing enough to prevent fraudulent activities. This decision effectively marks the end of an era where the SEC could rely on this reasoning to deny such proposals.
As I’ve mentioned in previous notes, I try my best not to get excited about ETF happenings but I’m afraid I’m once again finding myself at the edge of my seat with 6 applications up for decision this week. However, I can’t imagine the SEC approving a Bitcoin ETF right after losing the battle in court this week so I expect that we will see delays across the board.
So what now? The SEC has a few options:
Delay decision and come up with new fake reasons
Concede and approve
Request an appeal of the case
The second option seems to be the most prudent as it suggests that the SEC could use this opportunity to pivot its stance on a Bitcoin ETF. If they position it well, they could help to reshape the image of the SEC. They could play toward embracing innovation and adhering to the rule of law, ultimately signaling a more welcoming attitude toward the crypto space. Maybe I’m too optimistic but there’s loads of pressure to save face…
Grayscale, and incredibly large and powerful asset managers like BlackRock are outside the door of the SEC’s office waiting for the next move. The U.S. also has a presidential election coming up next year which could also influence the SEC's decision, as pressure mounts to keep up with the evolving financial markets.
Whether we get a decision this week, later this year, or next, Grayscale's legal triumph against the SEC underscores a significant shift in the regulatory environment. As the industry watches closely, the path forward for Bitcoin ETFs (and I believe an Ethereum ETF could come shortly thereafter) has never looked more promising.
Sure, the SEC could dream up new excuses to reject Grayscale's ETF bid. But now that BlackRock and others are set to enter the stage, will they bother? Or was it all just a stall tactic for their Wall Street buddies? The plot thickens.
Have a great Labour Day long weekend!