If Grayscale wins the SEC, what to expect next?

Written by BitpushNews Mary Liu

The final verdict of the Washington D.C. Circuit Court of Appeals against Grayscale Investments in favor of the U.S. Securities and Exchange Commission (SEC) is coming, and Coindesk, citing a person familiar with the matter, revealed that the court’s final action could be made on Friday’s deadline, but also next Monday because the deadline is midnight.

This news may give some clear signals to investors who are waiting for a spot Bitcoin ETF, but it may not be.

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One lawyer noted that the judge’s wording is important because the court may limit the SEC’s ability to reject the conversion of the Grayscale Bitcoin Trust (GBTC) to an ETF if it chooses to do so.

Despite the SEC’s decision not to challenge the court ruling, many in the industry still expect it could take weeks or months for a Bitcoin ETF to go public.

The opportunity for the Securities and Exchange Commission (SEC) to request an appeal passed on October 13. A Grayscale spokesperson said in a statement that the Washington, D.C. Circuit Court of Appeals will now issue a “final result” within 7 days of that date.

Industry sources say there are several possibilities for the court’s next move: It could close the case without comment, or it could give the SEC further instructions on what to do next.

Final ruling and what it may mean

Arie Heijkoop, a partner at law firm Haynes Boone, said in a Bloomberg interview that one thing is clear as Grayscale and the industry await final authorization from the court: The court will order the SEC to reconsider its decision to reject the conversion of GBTC to ETF.

Still, the details and scope of the court order — and the SEC’s upcoming response — remain unclear.

Arie Heijkoop said in the interview: “I do not anticipate that the court order will require the SEC to approve the application because the court may want to give the SEC a certain amount of space in case the SEC finds other grounds to reject the application it deems valid.” ”

The legal partner added that the regulator did not raise other significant issues, such as custody issues, in previous denials of spot Bitcoin ETFs or responses to Grayscale legal filings.

“Therefore, if it rejects the GBTC application again on new grounds, the applicant and the future court may be skeptical,” Heijkoop said. It will be interesting to see if the court will use language in the order that effectively restricts how the SEC can proceed to deny applications, such as making it clear that any such grounds must be based on factors that do not apply to Bitcoin futures. ”

The Washington D.C. Circuit Court of Appeals judge said in an August ruling that the SEC allowed bitcoin futures ETFs but prevented GBTC from converting to ETFs “is arbitrary and capricious.”

On October 19, Grayscale filed a Form S-3 registration statement with the SEC to list shares of Grayscale Bitcoin Trust on the New York Stock Exchange (NYSE) Arca under the ticker symbol GBTC, as part of an ongoing effort to convert GBTC into an ETF.

According to a statement from Grayscale, the filing of the document “is more of a procedural milestone” that allows the company to begin a conversation with another division of the SEC at the end of the lawsuit.

NYSE Arca, the exchange that will list the GBTC ETF, has not refiled 19b-4 for the proposed offering, and the GBTC conversion requires SEC approval of 19b-4.

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Scott Johnsson, an attorney with Davis Polk & Wardwell, analyzed on social media whether a new 19b-4 needed to be filed. He noted that 19b-4 is considered approved if the SEC does not issue an order. In addition, he noted that the appeals court will revoke the SEC’s disapproval.

Johnsson said Grayscale could use that as a bargaining chip with the SEC, which could ask the company to refile 19b-4.

“I don’t expect the mandate issued Friday by the Washington D.C. Circuit Court to provide much clarity,” he wrote. But it should be interesting to see if and when the GBTC is resubmitted. I do think resubmitting may end up being the path with the least resistance. ”

Approve multiple spot ETFs at the same time

Securities and Exchange Commission Chairman Gary Gensler declined to comment in an interview with Bloomberg Television on Wednesday on the regulator’s decision not to appeal Grayscale’s victory.

He acknowledged that its staff is actively reviewing nearly a dozen spot Bitcoin ETF documents. Gensler added that the SEC’s review team provides feedback to potential issuers. In fact, issuers have updated their Bitcoin ETF filings in recent days to provide more information, which executives and industry watchers say could be a sign of a productive dialogue between the company and regulators.

“It now appears more likely that the SEC has shifted its attitude and is not trying to articulate a new rationale for rejecting a spot bitcoin ETF, but is considering the application and, if so, possibly a number of other spot bitcoin ETFs,” Heijkoop said.

The SEC’s deadline for making a decision on Ark Invest and 21Shares’ spot Bitcoin ETF is January 10. The regulator has until mid-March to make a decision on a range of other such proposals, including those from BlackRock and Fidelity.

Heijkoop said the SEC’s approval of the Ethereum futures ETF appears to be “significant” following a court ruling in August, which pointed to problems with the differential treatment of spot and futures products.

“This indicates that the SEC approved the Ethereum futures ETF application because it knew that if an ETF application for a cash market traded product was rejected, it would be reviewed,” he explained.

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

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