Grayscale’s victory over the SEC is about to sound the horn. What should we expect next?

Grayscale's SEC victory sets the stage for new developments. What's the next move?

Author: LianGuaiBitpushNews Mary Liu

The final ruling of the Grayscale Investments’ lawsuit against the U.S. Securities and Exchange Commission (SEC) by the U.S. District Court of Appeals for the District of Columbia is imminent, according to a source cited by Coindesk. The source revealed that the court’s final action could come on the deadline day, which is believed to be Friday Eastern Time, but it could also be next Monday as the deadline is midnight.

This news could bring some clear signals for investors waiting for a spot Bitcoin ETF, but it may not necessarily do so. A lawyer pointed out that the wording of the judge is crucial, as the court could restrict the SEC’s denial of the conversion of the Grayscale Bitcoin Trust Fund (GBTC) into an ETF (if they choose to do so).

Although the SEC decided not to challenge the court’s ruling, many industry insiders still expect that it may take weeks or months for a Bitcoin ETF to be listed.

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The opportunity for the U.S. Securities and Exchange Commission (SEC) to request an appeal expired on October 13. A spokesperson for Grayscale said in a statement that the D.C. Circuit Court of Appeals will now release the “final outcome” within seven days after that date.

Industry insiders say there are several possibilities for the court’s next move: it may simply terminate the case without comment, or it may give further instructions to the SEC regarding the next steps.

What the final ruling and its potential implications mean

In an interview with Bloomberg, Arie Heijkoop, a partner at Haynes Boone law firm, stated that as Grayscale and the entire industry await the court’s final authorization, one thing is clear: the court will order the SEC to reconsider its decision to deny the conversion of GBTC into an ETF.

However, the details and scope of the court’s order, as well as the SEC’s forthcoming response action, remain unclear.

Arie Heijkoop stated in the interview, “I expect that the court’s order will not require the SEC to approve the application, as the court may want to give the SEC some room in case they find other reasons to deny an application that they believe is valid.”

The lawyer added that the regulatory agency did not raise any significant issues in its previous denial of a spot Bitcoin ETF or in its response to Grayscale’s legal documents, such as custody issues.

Heijkoop said, “So if they were to deny the GBTC application again for new reasons, the applicants and future courts might be skeptical. It will be interesting to see if the court uses language in the order that effectively limits how the SEC can continue to deny applications, such as explicitly stating that any such reasons must be based on factors not applicable to Bitcoin futures.”

In a ruling in August, a judge from the U.S. Court of Appeals for the District of Columbia Circuit stated that the SEC allowing Bitcoin futures ETFs but blocking the conversion of GBTC into an ETF was “arbitrary and capricious.”

As reported earlier by LianGuai, on October 19, Grayscale submitted an S-3 registration statement to the SEC, intending to list the Grayscale Bitcoin Trust on the New York Stock Exchange (NYSE) Arca with the ticker symbol GBTC. This is part of their ongoing efforts to convert GBTC into an ETF.

According to a statement from Grayscale, this submission is “more like a program milestone,” allowing the company to start a dialogue with another department at the SEC when the lawsuit ends.

The exchange NYSE Arca, which wants to list the GBTC ETF, has not yet resubmitted 19b-4 for this proposed product. The conversion of GBTC requires SEC approval for 19b-4.

Davis Polk & Wardwell lawyer Scott Johnsson analyzed on social media whether a new 19b-4 needs to be submitted. He pointed out that if the SEC does not issue an order, 19b-4 is considered approved. Furthermore, he noted that the appellate court will overturn the SEC’s disapproval.

Johnsson said that Grayscale can use this as a bargaining chip in negotiations with the SEC, which may require the company to resubmit 19b-4.

He wrote, “I don’t expect much clarity from the authorization issued by the D.C. Circuit Court on Friday. But it should be interesting to see if GBTC is resubmitted and when. I do think that resubmission may ultimately be the path of least resistance.”

Simultaneously approving multiple spot ETFs

SEC Chairman Gary Gensler declined to comment on the regulatory agency’s decision not to appeal the court victory of Grayscale during a Bloomberg TV interview on Wednesday.

He acknowledged that his staff is actively reviewing nearly ten spot Bitcoin ETF filings. Gensler added that the SEC’s review team is providing feedback to potential issuers. In fact, issuers have updated their Bitcoin ETF filings in the past few days, providing more information, which executives and industry observers say could be a sign of productive dialogue between companies and regulators.

Heijkoop said, “Now it appears more likely that the SEC has shifted its stance, not trying to articulate new reasons for rejecting the spot Bitcoin ETF but considering the application. If so, they might also consider a whole range of spot Bitcoin ETFs.”

The SEC’s final deadline for deciding on the spot Bitcoin ETFs of Ark Invest and 21Shares is January 10. The regulatory agency must make decisions on a series of other similar proposals by mid-March, including proposals from BlackRock and Fidelity.

Heijkoop states that after the court ruling in August, the SEC approving Ethereum futures ETF seems “significant,” as the ruling indicates an issue with the differential treatment of spot and futures products.

He explains, “This suggests that the SEC approved the application for Ethereum futures ETF because it knows that if it rejects ETF applications for spot market trading products, it will be subject to scrutiny.”

SEC allowed ProShares, VanEck, and Bitwise to launch six Ethereum futures ETFs on the same day. Heijkoop says this indicates that the regulatory agency may consider allowing a batch of Bitcoin ETFs (if approved) to start trading together.

He added, “I expect the SEC to approve the application for a spot Bitcoin ETF, which may include Grayscale, earliest by the end of this year, but more likely in early to mid-2024.”

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