The horn of Grayscale’s victory against the SEC is about to sound, what can we expect next?

Grayscale's SEC Triumph What Comes Next for the Horn of Victory?

The final judgment of the Washington D.C. Appeals Court on Grayscale Investments’ successful case against the U.S. Securities and Exchange Commission (SEC) is expected to come soon. According to an insider quoted by Coindesk, the court’s final action may be taken on the deadline day, which is a Friday, but since the deadline is midnight, it could also be made on the following Monday.

This news may bring some clear signals to investors waiting for a spot Bitcoin ETF, but it may also not.

A lawyer pointed out that the judge’s wording is important because the court may restrict the SEC in rejecting the conversion of Grayscale Bitcoin Trust Fund (GBTC) to an ETF (if they choose to do so).

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Although the SEC decided not to challenge the court ruling, many insiders still expect it to take weeks or months for a Bitcoin ETF to be launched.

The opportunity for the U.S. Securities and Exchange Commission (SEC) to request an appeal passed on October 13. A Grayscale spokesperson stated in a statement that the Washington D.C. Appeals Court will now issue the “final result” within seven days after that date.

Industry insiders say there are several possibilities for the court’s next action: it can terminate the case without comment, or it can give further instructions to the SEC for the next step.

What the final judgment and its implications may mean

Arie Heijkoop, a partner at Haynes Boone law firm, said in an interview with Bloomberg 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 reject the conversion of GBTC to an ETF.

However, the details and scope of the court’s order, as well as the response actions the U.S. Securities and Exchange Commission will take, are still unclear.

Arie Heijkoop said in the interview, “I don’t expect the court’s order to require the SEC to approve the application because the court may want to give the SEC some room in case they find other reasons to reject the application they consider valid.”

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

Heijkoop stated, “Therefore, if they reject the GBTC application again with new reasons, the applicant and future courts may be skeptical. Interestingly, whether the court will use language in the order that effectively limits the SEC in how they continue to reject the application, 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 Washington DC Circuit Court of Appeals stated that the SEC’s decision to allow Bitcoin futures ETFs but prevent the conversion of GBTC into an ETF was “arbitrary and capricious”.

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

According to a statement from Grayscale, the submission of this filing is “more like a procedural milestone” that allows the company to start discussions with another department at the SEC once the litigation is over.

The exchange NYSE Arca, where the GBTC ETF is set to be listed, has not yet refiled the 19b-4, which the conversion of GBTC requires SEC approval for.

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

Johnsson stated that Grayscale can use this as leverage in negotiations with the SEC, which may require the company to refile the 19b-4.

He wrote, “I expect that the authorization issued by the Washington DC Circuit Court on Friday will not provide much clarity. But it should be interesting to see if GBTC is resubmitted and when it is resubmitted. I do believe that ultimately resubmission may be the path of least resistance.”

Simultaneous approval of multiple spot ETFs

Gary Gensler, the chairman of the US Securities and Exchange Commission, declined to comment on the decision not to appeal against the court’s ruling in favor of Grayscale during an interview with Bloomberg TV 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 recently updated their Bitcoin ETF filings, providing more information, which executives and industry observers believe is a sign of productive dialogue between the companies and regulators.

Heijkoop said, “It now appears that the SEC is more likely to have shifted its stance, not trying to elucidate new reasons for rejecting a spot Bitcoin ETF, but considering the application. If so, it may also consider the numerous other spot Bitcoin ETFs.”

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

Heijkoop said that after the court ruling in August, the approval of Ethereum futures ETF by the U.S. Securities and Exchange Commission (SEC) seems to be “significant”, pointing out the problem of different treatment for spot and futures products.

He explained, “This indicates that the SEC approved the application for Ethereum futures ETF because they know that if they refuse ETF applications for spot market trading products, they will be scrutinized.”

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

He added, “I expect that the SEC will approve spot Bitcoin ETF applications, which may include Grayscale, possibly as early as the end of this year, but more likely in early to mid-2024.”

Author: LianGuaiBitpushNews Mary Liu

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