- The SEC has been grappling with pivotal choices as it approaches deadlines for Bitcoin ETF approvals.
- A unanimous verdict by judges has cast doubt on the SEC’s rationale for favoring futures-based ETFs.
- With various options now available, speculation has centered on the SEC’s potential response.
As the U.S. Securities and Exchange Commission (SEC) faces the imminent inaugural deadlines for approving seven Bitcoin exchange-traded funds (ETF) in the upcoming week, a specific timeframe of 90 days, commencing from the August 29th ruling, has been allotted to the SEC for potential recourse against the Grayscale ruling.
Court Orders SEC to Reassess Grayscale’s Bitcoin ETF Application
The focal legal matter revolved around whether Grayscale had disregarded the mandates outlined in the Administrative Procedures Act (APA) when it denied approval for a Bitcoin ETF tied to the actual Bitcoin market. This happened although the SEC had greenlit applications for Bitcoin ETFs linked to futures traded on CME.
A unanimous verdict from a trio of judges representing diverse political perspectives concluded that the SEC transgressed the APA by arbitrarily and capriciously dismissing Grayscale’s submission. Furthermore, the court mandated that the SEC reverse its verdict and reevaluate the application, adhering to the standards laid out in the APA.
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The court did not pass judgment on:
- The foundation of Grayscale’s application.
- The legitimacy of the SEC’s apprehensions concerning deceit and market manipulation.
- The necessity of shared custody agreements.
- The SEC’s past determinations regarding ETF applications related to spot BTC.
Instead, the court honed in on the SEC’s failure to substantiate its rationale for favoring ETFs anchored in futures over analogous products directly linked to the current Bitcoin market. This omission was identified as a violation of the APA.
What Lies Ahead for the SEC?
The verdict handed down by the Court positions the SEC in a challenging predicament, intensifying the likelihood of a green light for a spot Bitcoin ETF. Nonetheless, this juncture presents the SEC with a spectrum of options to ponder should they persist in their inclination to withhold approval for the ETF.
Appeal the Verdict
The SEC might pursue an “en banc” review that involves all 17 justices of the Court. However, given the unanimous 3-0 decision, the likelihood of success is minimal.
Reevaluate the Application
The SEC could reverse its previous stance of rejecting Grayscale’s application and initiate a fresh evaluation as mandated by the Court’s directive.
Substantiate via Evidence
Should the SEC furnish evidence substantiating the differentiation it makes between spot and futures markets based on regulatory considerations, its position could gain stronger support.
Revoking Approvals for Futures-Backed ETFs
This is the nuclear option and is improbable due to the impact it would have on the market.
On the Flipside
- The court’s call for a reevaluation might lead to a precedent where regulatory decisions are reversed upon legal review, which could bring uncertainty into the market for future lawsuit verdicts.
- The court’s focus on the SEC’s distinction between futures and spot market ETFs overlooks that these two types of investments have inherent differences.
Why This Matters
With the clock ticking on the SEC’s pivotal decisions, the outcome stands as a potential turning point for the evolution of cryptocurrency investment. The verdict’s ripples could reshape the landscape of crypto trading instruments, marking a decisive step toward mainstream recognition and adoption.
To learn more about the potential factors driving a crypto bull market beyond ETFs, read here:
ETFs Aren’t Enough for a Crypto Bull Market. What Else Do We Need?
To explore the unfolding aftermath of Grayscale’s victory over the SEC in the Bitcoin ETF case and the ensuing implications, read here:
