Grayscale Wins Lawsuit Against SEC | Why is Crypto Pumping ?

Grayscale, the largest over-the-counter traded Bitcoin fund, has won a major legal victory against the U.S. Securities and Exchange Commission (SEC) in its bid to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Could this victory pave the way for more institutional investors to access the cryptocurrency market ? Let’s find it out.

What is GBTC and why does it matter?

GBTC is a trust that holds Bitcoin and issues shares that trade on the secondary market. It allows investors to gain exposure to Bitcoin without having to buy, store, or manage the cryptocurrency themselves. GBTC is one of the most popular and liquid ways to invest in Bitcoin, with over $14 billion in assets under management.

However, GBTC has some drawbacks compared to a spot Bitcoin ETF. A spot Bitcoin ETF would track the price of Bitcoin directly and allow investors to buy and sell shares on a regulated exchange meaning that prices of spot Bitcoin ETF are directly reflected as the price of Bitcoin.

Therefore a spot Bitcoin ETF would also eliminate the premium or discount that GBTC shares often trade at relative to the net asset value of the underlying Bitcoin. A spot ETF would also reduce the fees that investors have to pay to access Bitcoin through GBTC.

Grayscale’s lawsuit against SEC

On June 29, 2022, the SEC denied Grayscale’s application to convert GBTC into a spot ETF, citing concerns about market manipulation, investor protection, and regulatory compliance. The SEC argued that Grayscale did not meet the standards for listing a spot ETF under the Investment Company Act of 1940.

The next day, Grayscale filed a petition for review with the U.S. Court of Appeals for the District of Columbia Circuit, challenging the SEC’s decision. Grayscale hired former U.S. Solicitor General Donald B. Verrilli Jr., a prominent lawyer who has argued before the Supreme Court, as its senior legal strategist.

On August 29, 2023, U.S. Court of Appeals Circuit Judge Neomi Rao ordered that Grayscale’s petition for review be granted and that the SEC’s order to deny the GBTC listing application be vacated. Judge Rao said that the SEC did not “offer any explanation” as to why Grayscale was in the wrong and that the SEC failed to consider relevant factors and evidence in its decision.

However, this does not mean that Grayscale will automatically get its spot ETF approved. The order only means that the SEC will have to reconsider Grayscale’s application and provide a more reasoned analysis of its decision. The SEC could still deny Grayscale’s application again, but it would have to justify its reasons more clearly and convincingly.

What are the implications of Grayscale’s victory?

Grayscale’s victory is a significant milestone for the cryptocurrency industry, as it shows that the SEC is not above judicial scrutiny and that its decisions can be challenged and overturned by the courts. This could encourage more firms to pursue legal action against the SEC if they feel that their applications are unfairly rejected or delayed.

Grayscale’s victory could also increase the chances of other firms getting their spot Bitcoin ETFs approved by the SEC. Several firms, such as VanEck, Fidelity, and WisdomTree, have filed applications for spot Bitcoin ETFs with the SEC, but none have been approved yet. The SEC has repeatedly postponed its decisions on these applications, citing similar concerns as those raised against Grayscale.

If Grayscale can successfully convert its GBTC into a spot ETF, it could set a precedent and a roadmap for other firms to follow suit. This could lead to more competition and innovation in the cryptocurrency market, as well as more institutional adoption and growth of Bitcoin and other digital assets.

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