Grayscale Wins Legal Fight with SEC Over Bitcoin ETF

By Aaron Feuerstein August 30, 2023 In Uncategorized

In a groundbreaking legal decision, the United States Securities and Exchange Commission (SEC) has received a major setback in its regulation by enforcement towards the crypto industry.

Digital currency asset manager Grayscale (GBTC) had sued the regulator after it denied its application for a Bitcoin trust to be converted into a Bitcoin ETF. After the initial application in October 2021, the SEC rejected the conversion in June 2022 claiming Grayscale had not answered its questions about how GBTC would prevent market manipulation. 

The U.S. District Court for the District of Columbia ruled on Tuesday local time that the SEC must review its decision to reject the conversion. While this does not mean the SEC will approve a Bitcoin ETF, the industry has reacted very positively overall.

Jake Chervinsky, Chief Policy Officer at the Blockchain Association said on “X” that this decision is a huge win for the crypto industry, stating “It’s very rare for a federal circuit court to find that an agency has violated the APA by acting arbitrarily and capriciously”. APA refers to the Administrative Procedure Act, it governs how federal agencies in the US develop and issue regulations and review decisions.


What Does the Judgement Mean for Crypto?

While Chervinsky does not think ETF approval is right around the corner, others are more enthusiastic. Founder of Digital Assets Council of Financial Professionals, Ric Edelman, said in an interview with Investor’s Business Daily, “Assuming the SEC does not appeal, it is likely to result in the quick approval of not only Grayscale’s spot bitcoin ETF application, but many of the other nine applications pending before the SEC as well […] It’s the most bullish event in crypto in years.”

Chervinsky, however, pointed out that the court did not order the approval of the ETF, but rather, it had rejected the SEC’s ‘fraud and manipulation’ issue. After spending a decade denying a Bitcoin ETF, Chervinsky said the agency may very well find another reason to reject Grayscale.

Yet, he also sees this as a potential opportunity for the SEC to step back from its long-held opposition. He said the SEC could simply claim to follow the rules giving it “a convenient excuse to back out of a losing battle.”

The SEC has long opposed an ETF in which Bitcoin is held directly. So far, US customers are only able to invest in ETFs with exposure to Bitcoin futures contracts, as well as companies with Bitcoin holdings. Undoubtedly, there is a lot of pressure on the SEC. BlackRock Chairman and Chief Executive Officer, Larry Fink, has recently been a vocal proponent of a Bitcoin ETF, and his company is one of many that have filed for an ETF.

Following the decision, Bitcoin led a market recovery rally with some 5.27 per cent gains in the 24-hour period according to data from CoinMarketCap. After weeks of trading around $40,000 (US$25,832), BTC initially shot up past the $43,300 (US$27,964) and is trading hands for $42,643 (US$27,532) at the time of writing.

Aaron Feuerstein

Aaron Feuerstein

Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.

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