If Grayscale ultimately wins the lawsuit against the SEC, what should we expect next?

What Can We Expect if Grayscale Ultimately Wins the Lawsuit Against the SEC?

Author: LianGuaiBitpushNews Mary Liu

The final judgment of the Washington, D.C. Circuit Court of Appeals in favor of Grayscale Investments against the U.S. Securities and Exchange Commission (SEC) is imminent. According to a source quoted by Coindesk, the final action by the court may be taken on the deadline day, which is Friday in Eastern Time, but it may also be taken on the following Monday due to the midnight deadline.

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

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A lawyer pointed out that the wording of the judge is crucial because the court may limit the SEC’s refusal to convert Grayscale Bitcoin Trust (GBTC) into an ETF (if it chooses to do so) in a specific way.

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

The U.S. Securities and Exchange Commission (SEC) had the opportunity to appeal until October 13th. A Grayscale spokesperson stated in a statement that the Washington, D.C. Circuit Court of Appeals will now release the “final result” within 7 days after that date.

Industry experts say that there are several possibilities for the court’s next actions: it can terminate the case without comment, or it can issue further instructions to the SEC regarding the next steps.

The final ruling and what it might mean

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

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

In the interview, Arie Heijkoop said, “I don’t expect the court’s order to require the SEC to approve the application, as the court may want to give the SEC some room in case it discovers other reasons to reject the application that it considers valid.”

The legal partner added that the regulatory agency did not raise any other 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 stated, “Therefore, if it rejects 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 how the SEC can continue to reject the application, such as explicitly stating that any such reasons must be based on factors that do not apply to Bitcoin futures.”

In a ruling in August, a judge from the Washington, D.C. Circuit Court of Appeals stated that while the SEC allows Bitcoin futures ETFs, preventing the conversion of GBTC into an ETF is “arbitrary and capricious.”

Previously reported by LianGuai, on October 19, Grayscale submitted an S-3 form registration statement to the SEC, intending to list Grayscale Bitcoin Trust (GBTC) stocks on the New York Stock Exchange (NYSE) Arca, with the stock code GBTC. This is part of an ongoing effort to convert GBTC into an ETF.

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

The exchange NYSE Arca, where the GBTC ETF is set to be listed, has not yet resubmitted 19b-4 for this proposed product, and the conversion of GBTC requires SEC approval of 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. In addition, he noted that the appeals court will overturn the SEC’s disapproval.

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

He wrote, “I expect the authorization issued by the Washington, D.C. 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 think that ultimately resubmission is likely the path of least resistance.”

Approval of multiple spot ETFs

Gary Gensler, chairman of the U.S. Securities and Exchange Commission, declined to comment on the decision of the regulatory agency not to appeal the Grayscale court victory in 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 reviewing team provides feedback to potential issuers. In fact, issuers have recently updated their Bitcoin ETF filings with more information, which executives and industry observers say could be a sign of productive dialogue between the companies and the regulatory agency.

Heijkoop said, “It seems now that the SEC is more likely to have shifted its stance, not striving to elucidate new reasons to deny spot Bitcoin ETFs, but considering the applications. If that’s the case, they may also consider numerous other spot Bitcoin ETFs.”

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

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

He explained, “This shows that the SEC approved the Ethereum futures ETF application, knowing that if they reject the ETF applications for spot market trading products, they will face scrutiny.”

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

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

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