Follow-up analysis of the Grayscale case Will the US SEC fully approve a Bitcoin spot ETF in January next year?

Grayscale case analysis Will the US SEC approve Bitcoin spot ETF in January?

Author | BEN STRACK, Blockworks

Translation | Wu Shuo Blockchain

The deadline for the U.S. Securities and Exchange Commission (SEC) to appeal the Grayscale Investments lawsuit is only one week away, and its decision could foreshadow the fate of spot Bitcoin ETFs – at least the potential release schedule.

While some industry observers have suggested that the SEC’s appeal could be unfavorable to the approval timeline of Bitcoin ETFs, many expect the SEC not to appeal. Regardless of the committee’s decision, some industry observers believe that Bitcoin ETFs will eventually be listed for trading.

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SEC’s Choice

A judge in the United States Court of Appeals for the District of Columbia Circuit ruled in August that the SEC’s refusal to approve the Grayscale Bitcoin Trust’s conversion to an ETF but approval of a Bitcoin futures ETF was “arbitrary and capricious.”

A spokesperson for the SEC told Blockworks that the agency is “reviewing the court’s decision to determine the next steps.” Grayscale Investments, in a statement following the decision, said it would “work closely with the SEC to determine the next steps to bring GBTC to NYSE Arca as a spot Bitcoin ETF.”

The SEC’s deadline to challenge the decision is October 13th. It can seek to appeal to the U.S. Supreme Court – if granted a certiorari (a command issued by a higher court to a lower court, requiring the lower court to submit all relevant records of a case for review) – or it can request a rehearing of the ruling by the “en banc panel” of the appeals court.

Executives at LianGuaintera Capital said in their September letter to investors last month that the Supreme Court route is unlikely, noting that “from a legal perspective, this case is not that significant.”

If the SEC chooses not to appeal, it is expected that the court will issue an order detailing the next steps. According to a blog post by Winston & Strawn law firm, this could include “directing the SEC to approve the application or to reconsider Grayscale’s application, in which case the SEC could still reject the proposal on other grounds.”

Analysts Chase White and Joe Flynn of ComLianGuaiss Point Research & Trading said in a research report last Friday that the likelihood of obtaining a full hearing or a certiorari is “almost zero.”

“We believe Gensler (SEC Chairman) knows this, and we would not be surprised if the agency chooses not to appeal,” they added.

But even if the SEC chooses not to appeal, it could still seek to “impede progress,” White and Flynn said.

“The SEC can still reject the conversion for different reasons, which makes the need for an appeal less urgent than in the Ripple case, where the judge’s decision was clear and had a significant impact on the legal classification of cryptocurrency assets,” said Matteo Greco, an analyst at Fineqia International, told Blockworks.

A spokesperson for the SEC declined to comment on Friday.

Is it just a matter of time, not if it will be launched?

Hashdex Chief Investment Officer Sam Kerbage said in a webinar last month that it is “the most likely path” for the SEC to request Grayscale to submit a new proposal and reject it again for different reasons.

Kerbage pointed out that resubmitting a proposal would initiate a 240-day review period.

The 240-day window for the Spot Bitcoin ETF proposed by Ark Invest will expire on January 10th. For other proposals such as BlackRock and Fidelity’s, the final decision deadline is approximately two months later.

“The general view is that if this round of spot BTC ETF applications is approved, it is most likely to happen on or before January 10th, because if it is rejected in January and approved in March, it will appear inconsistent,” said Alex Thorn, head of research at Galaxy Digital, in a statement.

Greco said that the January timeframe does indeed mean “comprehensive approval or irrevocable rejection.”

“Rejection will undoubtedly have a short-term negative impact, especially as traders can speculate on the resulting market uncertainty and volatility,” explained Greco. “On the other hand, approval will generate positive market reactions, signaling the potential influx of significant traditional financial capital.”

Regardless of what happens in January, many agree that a spot Bitcoin ETF will eventually trade in the United States.

Analysts at Bloomberg Intelligence stated after Grayscale’s decision that they believe there is a 75% chance that the SEC will approve a spot Bitcoin ETF by the end of 2023. By the end of 2024, the probability of approval is 95%.

“While our base case remains that the SEC will begin approving ETFs in early 2024, we acknowledge that this is only with a slight edge given Gensler’s ongoing anti-crypto stance,” wrote White and Flynn in their report on Friday. “However, we believe that considering our view that the SEC has almost no chance of winning in court once everything is said and done, it is almost certain that a spot BTC ETF will be approved within the next two years.”

Despite the uncertainty surrounding the SEC’s next move, Joel Kruger, market strategist at LMAX Group, believes that cryptocurrencies have a trend advantage.

“We believe the bigger message here is a narrative that continues to drive cryptocurrencies in a favorable direction,” Kruger told Blockworks. “In recent months, there has been an increasing acceptance and understanding of the value proposition of crypto assets by the public and lawmakers.”

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