If a federal court rules in Grayscale’s favor in its lawsuit against the Securities and Exchange Commission (SEC), the outcome could be significant. Grayscale, a CoinDesk sister company, filed the lawsuit after the SEC rejected its application to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund. Grayscale argued that the futures-based bitcoin ETFs the SEC has already approved are fundamentally no different from the bitcoin-holding (spot) ETF Grayscale wants to offer. According to Grayscale’s Chief Legal Officer Craig Salm, a favorable ruling could have many possible outcomes. If the court rules in Grayscale’s favor, it could open the door for the company to offer a bitcoin-holding ETF, potentially providing investors with more options for investing in the cryptocurrency.
The SEC’s decision to approve bitcoin futures trading but deny spot bitcoin ETFs has been called into question by Salm, a cryptocurrency expert. He believes that the SEC is acting arbitrarily and capriciously in violation of the Administrative Procedure Act, and discriminating against issuers in violation of the Exchange Act. Futures derive their pricing from the underlying spot markets, and Salm believes that if bitcoin futures are approved, spot bitcoin ETFs should also be approved. He is asking the SEC to explain why they are denying spot bitcoin ETFs when they have approved bitcoin futures.
Grayscale Investments has argued that its Bitcoin Investment Trust (GBTC) should be approved as a spot bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC). On Tuesday, a panel of judges on the D.C. Circuit Court of Appeals in Washington, D.C. seemed to agree with Grayscale’s argument. If the court rules in Grayscale’s favor, the SEC could approve GBTC as a spot bitcoin ETF, as well as approve other spot ETFs from other companies that have been similarly rejected by the SEC. The court is expected to issue its ruling in the next three to 12 months.
The SEC is considering the approval of Bitcoin ETFs, which would provide a regulated way for U.S. investors and consumers to invest in Bitcoin. SEC Commissioner Hester Peirce believes that crypto is here to stay and that Bitcoin ETFs are a key way to protect investors and consumers. However, there is a possibility that the SEC could go back and disapprove GBTC as an ETF or rescind previously approved Bitcoin futures ETFs. If the SEC takes the stance of treating all Bitcoin ETF products the same, this outcome may come to fruition. Ultimately, the SEC’s decision will determine the future of Bitcoin ETFs in the U.S.
The SEC is unlikely to take a route that would involve regulating Bitcoin, due to the amount of disruption it would cause and the lack of investor protections that would result. The SEC has already stated that it does not consider Bitcoin to be a security, so the Commodity Futures Trading Commission should be the agency involved with Bitcoin products. This would ensure that investors are protected and that the disruption caused by regulation is minimized.
The SEC’s jurisdiction over spot bitcoin trading is not necessary for a spot bitcoin ETF, according to Gabor Gurbacs, VanEck’s Digital Asset Director. Gurbacs believes that bitcoin is a commodity, not a security, and should be under the jurisdiction of the CFTC. He believes that more legislative actions are needed to bring clarity to the asset class, and that the CFTC is the right body to oversee spot bitcoin trading. Gurbacs is confident that the CFTC can provide the necessary oversight to ensure that the asset class is properly regulated and that investors are protected.
