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Why Is Grayscale’s Win On Bitcoin ETF Application Legendary?

By August 30, 20233 minute read

Grayscale’s Bitcoin ETF Application Win is Legend – “Wait For It” – Dary! 🏆

Let’s see why!

Key Highlight: Grayscale Investments LLC emerged victorious in a significant legal battle as it strives to introduce a Bitcoin Exchange-Traded Fund (ETF), a development that brings the crypto sector to the brink of accessing substantial funds from ordinary investors. This article will delve into the details of this epic win.

Let’s dive right into the article.

What happened previously?

In 2022, Grayscale took legal action against the SEC following the rejection of its request to turn its Bitcoin trust, which was traded over-the-counter, into an ETF. The District of Columbia Court of Appeals issued a verdict in favor of Grayscale, dealing a substantial setback to the SEC.

Initially, the SEC declined Grayscale’s application for a Bitcoin ETF, citing the company’s inadequate response to inquiries and issues regarding the possibility of market manipulation and safeguarding investor interests. This reasoning has been consistently employed by the SEC to reject numerous Bitcoin ETF applications over recent years.

Grayscale’s point of argument

Grayscale put forth the contention that the surveillance mechanisms in place for Bitcoin futures ETFs should extend to Grayscale’s spot ETF, given that both offerings are reliant on the underlying price of Bitcoin.

Bitcoin futures ETFs monitor futures contracts tied to Bitcoin, which are traded on the Chicago Mercantile Exchange (CME), the principal platform for such derivatives. As per the SEC, the CME maintains continuous real-time vigilance over the futures market’s conditions and price fluctuations, aiming to identify and counteract instances of price distortion, including those stemming from manipulative activities.

Donald Verrilli Jr., Grayscale’s lead legal representative, communicated to the court in March that a spot Bitcoin ETF would enhance investor protection by leveraging the CME’s regulatory oversight of the market. Currently, the majority of American Bitcoin investments are channeled through relatively less-established or unregulated exchanges.

Conversely, the SEC said that Grayscale lacks sufficient data to ascertain whether the surveillance agreement governing CME futures could effectively detect potential manipulation within the spot markets.

The Court’s point of arguments

The court highlighted that the SEC’s rejection lacked a coherent explanation. The Commission failed to provide a satisfactory explanation for greenlighting the listing of two Bitcoin futures Exchange-Traded Products (ETPs) while withholding approval for Grayscale’s proposed Bitcoin ETP. This inconsistency, unlike the regulatory treatment of similar products, is considered to be in violation of the law.

Grayscale welcomed the court’s decision, stating that this marks a significant advancement for investors.

What now?

Both parties have a 45-day window to appeal the ruling. If an appeal takes place, it could either be directed to the U.S. Supreme Court or undergo a review by an en banc panel. However, it remains uncertain whether the SEC will choose to initiate an appeal.

If Grayscale ultimately prevails and the SEC does not appeal, the court will outline the implementation process of its decision. This might encompass directing the SEC to grant the application’s approval or to reevaluate Grayscale’s proposal. In the latter scenario, the SEC might still decline the proposal on alternative grounds.

What will other institutions do after this win?

Following this victorious outcome, there is a heightened curiosity regarding the actions that other institutions might take. Throughout this year, multiple companies have submitted applications for spot Bitcoin ETFs to be listed on platforms such as Nasdaq or CBOE Global Markets. Notable names among these applicants include BlackRock, recognized as the largest asset manager globally, as well as Fidelity, WisdomTree, VanEck, Bitwise, and Invesco.

Many of these entities have put forth plans to collaborate with Coinbase, the leading U.S.-based cryptocurrency exchange, in order to regulate trading within the underlying Bitcoin market. The SEC has officially acknowledged these applications, with the potential decision period extending up to 240 days.

The implications of Tuesday’s ruling on these applications remain ambiguous, and it’s important to note that the ruling itself doesn’t necessarily mandate the SEC’s approval of a Bitcoin ETF. However, the ruling could play a role in shaping the SEC’s determinations regarding these proposals.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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Harshita Shrivastava

Harshita Shrivastava is an Associate Content Writer with WazirX. She did her graduation in E-Commerce and loved the concept of Digital Marketing. With a brief knowledge of SEO and Content Writing, she knows how to win her content game!

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