A federal court on Tuesday rejected the Securities and Exchange Commission’s justification for rejecting one such product, making the introduction of a spot Bitcoin exchange-traded fund nearly a foregone conclusion.
The verdict, which has broad ramifications for the cryptocurrency industry, was one of the most eagerly anticipated rulings of the year. It matters to established businesses as well, including those eager to invest in digital assets, like BlackRock (BLK), Invesco (IVZ), and others.
Following the news, the price of Bitcoin increased by more than 7%. Crypto companies like Coinbase COIN +14.91% Global (COIN) and Marathon Digital (MARA) had a 15% and 29% increase in their stock prices, respectively.
Although the prospect of a Bitcoin ETF is unquestionably good for the token market, there is reason to wonder if the decision will have the same profound effects on the market as the price movement suggests. One is that, if it so chooses, the SEC still has the option to oppose or at the very least postpone the launch of a Bitcoin ETF.
The SEC was found to have behaved arbitrarily and capriciously when denying Grayscale Investments’ request to convert the Grayscale Bitcoin Trust GBTC +16.95% (GBTC) into an ETF, according to the decision made by the U.S. Court of Appeals for the D.C. Circuit. The judges criticised the SEC for failing to fully explain why it rejected spot Bitcoin ETFs while permitting ETFs that hold Bitcoin futures, despite the agency’s claim that the Bitcoin market lacks appropriate controls to identify fraud and manipulation.
After the judgement is rendered, the agency has 45 days to ask for a larger panel of appellate judges to hear its case. The agency could possibly take the matter to the Supreme Court for review, though doing so would probably require the support of the Justice Department.
The SEC has other alternatives to postponing the launch of an ETF, even if it decides not to appeal the D.C. Circuit ruling. Another lawsuit would undoubtedly result from the agency’s attempt to deny Grayscale’s ETF conversion for a justification that the court did not review. The SEC might even attempt to revoke its certification of Bitcoin futures funds in the worst-case situation.
The SEC will probably decide to allow the funds to trade nonetheless.
Gensler and the agency “are currently in a precarious situation that may be politically untenable. The simplest solution is to accept these ETFs, according to Nate Geraci, head of the advice company ETF Store.
On Tuesday, the SEC stated that it was “reviewing the court’s decision to determine the appropriate next steps.”
The spot Bitcoin ETF debuts, according to Geraci, are expected to “shatter” historical records for ETF launches, making Bitcoin futures ETFs obsolete. A spot Bitcoin ETF approval is anticipated to improve token values and increase revenue for BlackRock, Fidelity, Invesco, and the countless other companies that have submitted applications to introduce comparable products.
The profits, though, might be modest. The price of Bitcoin had increased by around 7.3% to $27,900 as of 4 p.m. on Tuesday in New York, giving it a total market value of about $543 billion. Even if one Bitcoin fund were to gain 5% of the market at a 0.5% yearly fee, it would only bring in roughly $136 million each year.
The real windfall would come from ETF approval, which would allow financial advisors and other institutional investors to acquire tokens in a recognisable form that trade on exchanges, ushering token investing into the mainstream. A Bitcoin ETF may spur $30 billion in additional demand for Bitcoin, according to a recent estimate by cryptocurrency trading firm NYDIG.
However, even that defence has some holes. The most successful Bitcoin futures ETF, ProShares Bitcoin Strategy (BITO), had a disastrous beginning but has only amassed roughly $940 million in assets.
For Coinbase Global (COIN), which closed on Tuesday up over 15% at $84.70, the judgement has different ramifications. The SEC filed a separate lawsuit against Coinbase in June, saying that it runs an unlicensed securities exchange, a claim that Coinbase vigorously refutes.
The dispute centres on whether some tokens and items offered by the platform should be considered securities and registered with the SEC. However, the GBTC ruling does offer some support, according to Paul Grewal, the chief legal officer for Coinbase.
When it comes to all things related to digital assets, Grewal said, “it certainly suggests that the SEC needs to rethink how it has approached enforcement as well as its review of applications.”
The Coinbase case may take years to resolve, but for the time being, it is obvious that the tide has turned in favour of cryptocurrencies.