Interpretation of Grayscale's winning case: the court believes that the SEC has "double standards", and the preliminary ruling paves the way for spot ETFs

Author: The Dark Side of the Moon, PANews

On August 29, the U.S. court ruled on the lawsuit between Grayscale and the SEC. The judge believed that it was unreasonable for the SEC to refuse Grayscale to issue a bitcoin spot ETF, and asked the SEC to reprocess Grayscale’s request.

Affected by this, optimism spread in the market, and Bitcoin rose to break through the $27,000 and $28,000 mark. However, it must be noted that the SEC can still file an appeal. Even if Grayscale’s application is re-examined, it can also find other reasons to reject the Bitcoin spot ETF .

More precisely, the court’s ruling is because it believes **SEC has adopted double standards for bitcoin spot and derivatives, but it cannot explain the necessity of adopting such double standards, so the court The SEC is required to treat Grayscale’s spot applications equally, and not to discriminate against Grayscale’s market player status, rather than to think that the Bitcoin spot ETF should be approved. **

It can be considered that the power to approve or reject the issuance of Bitcoin spot ETFs falls within the scope of the SEC’s responsibilities. The court cannot require the SEC to directly approve or reject, but requires the SEC to face up to Grayscale’s request and adopt the same terms as reviewing Bitcoin futures products .

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Court documents: SEC’s “double standard” for spot and derivatives is not accepted

In the original text issued by the court, the focus of the dispute between the two parties is whether there is a clear difference between bitcoin derivatives and spot, and why the SEC will reject the spot ETF in the case of passing the bitcoin futures ETF.

The court held that Bitcoin spot is characterized by cash transactions and immediate delivery, while derivatives markets, such as futures, rely on spot market prices for transactions, but usually do not carry out direct delivery, such as CME (Chi Mercantile Exchange) has $1.7 billion in undelivered contracts (time in filing).

In addition, derivatives are generally subject to more restrictions, such as specific investors can only participate, or can only be traded over the counter (OTC), while spot ETFs will directly allow various types of customers to purchase and invest.

The SEC believes that Grayscale holds 3.4% of the circulating bitcoins. If it is allowed to directly participate in the exchange’s spot market, tens of billions of bitcoins will seriously impact the current market price system. However, the derivatives market is subject to more and mature regulatory restrictions, and the SEC has set a series of test conditions, and finally believes that spot ETFs cannot pass the regulatory framework.

Grayscale believes that the SEC’s arguments cannot be justified, specifically in the following points:

1. Grayscale proves that Bitcoin spot is highly similar to Bitcoin futures products that have passed, such as Teucrium and Valkyrie. Both parties are anchored to the spot market price, and it can even be considered as Bitcoin spot ETF and CME (CME Group) futures The price correlation between is 99.9%;
2. Grayscale’s holdings are not high compared to Bitcoin’s daily trading volume of 45 billion US dollars. The value of Bitcoin held by Grayscale has increased by about 7 billion US dollars in two years, but the value of Bitcoin has increased by about 72.1 billion during the same period. 100 million US dollars, Grayscale cannot operate or significantly affect the market;
3. The SEC has different review standards before and after. The trading volume of Bitcoin futures on CME (CME Group) has increased from $737 million at the end of 2017 to $44.6 billion at the end of 2021. If you think that futures products will not affect the market, then you should not think that spot ETFs will affect the market, because the spot market is more liquid and deeper than the futures market.

Based on the above criteria, the judge believes that the SEC’s statement is untenable, especially under the premise of passing bitcoin futures products. In terms of review standards, there is no significant difference between bitcoin spot and futures, so the judge asked the SEC to re-examine Grayscale application.

But then, the SEC had 45 days to submit a full hearing, meaning the case was heard by all the judges on the court (here, 17), rather than a panel of just three judges like this original decision.

Subsequent progress: GBTC turned into a spot ETF, there are still variables

After the court ruling was issued, both the SEC and Grayscale remained calm. Unlike the enthusiastic market response, both parties were very cautious in their wording. On the one hand, from the perspective of the trial process, the SEC can still appeal; on the other hand, as previously mentioned As mentioned above, the court did not allow Grayscale to directly convert GBTC into a spot ETF, and SEC approval is still required.

After the ruling came out, Grayscale CEO Sonnenshein tweeted that he would follow up, but did not express how to deal with the follow-up process, while the SEC spokesperson said that he was also reviewing the document to determine the follow-up action plan.

![Interpretation of Grayscale’s winning case: the court believes that SEC has “double standards”, and the preliminary ruling paves the way for spot ETF] (https://img-cdn.gateio.im/resized-social/moments-69a80767fe-f56a5d2bc4-dd1a6f-1c6801)

It has been exactly ten years since Gemini first applied for the issuance of Bitcoin spot ETF in 2013. In this process, Grayscale is not the earliest, but it must be the most active applicant. From the perspective of the number of coins held, Grayscale He once held about 700,000 bitcoins, making him the largest public holder.

In fact, as early as 2016, Grayscale had communicated with the SEC, hoping to issue spot ETFs, but was rejected by the SEC because the market environment and regulatory conditions were immature, and then voluntarily withdrew the application. During the bull market in 2021, it tried again The conversion of GBTC to spot ETF was rejected again, and the two parties immediately went to court.

However, for a long time, its main product is GBTC, which does not have the liquidity of stocks or tokens, and is only suitable for specific groups of people to access the Bitcoin market. Therefore, there may be discounts under market fluctuations. For example, in the DCG crisis, its highest discount reached . 45%, resulting in serious losses.

According to court documents, Grayscale believes that because it cannot be circulated in the spot market, even if calculated on a 30% basis, it has caused at least a loss of US$4 billion, and spot ETFs are the most critical way to turn losses into profits.

Whether the SEC will approve the Bitcoin spot ETF is still variable

From the current market situation, there are a number of Bitcoin spot ETFs waiting in line for applications recently, including Bitwise, BlackRock, VanEck, WisdomTree and Invesco, etc. According to the schedule, the SEC will review these applications before the end of this week. Given a response, and the SEC also postponed the application of 21Shares and ARK Investment Management in early August, and now Grayscale’s victory has made this weekend confusing.

![Interpretation of Grayscale’s winning case: the court believes that the SEC has “double standards”, and the preliminary ruling paves the way for spot ETF] (https://img-cdn.gateio.im/resized-social/moments-69a80767fe-e1979b446e-dd1a6f-1c6801)

From the perspective of the SEC, in the current market environment, Bitcoin futures are sufficient to meet the needs of American investors to participate in the encryption market, and at the moment when it is attacking exchanges and tokens, it hastily passed Bitcoin spot ETFs undoubtedly have their own contradictions, but it will still take time to see how the final decision is made under the court order.

But as Bloomberg ETF analyst James Seyffart said, if the US Securities and Exchange Commission (SEC) wants to prevent the listing of Bitcoin spot ETFs, they may have two main options. The first option is that they will have to delist the Bitcoin futures ETF. The court order basically means that a bitcoin futures ETF cannot be allowed to list while simultaneously using an argument of market manipulation to reject a spot ETF. The second possible avenue is to reject bitcoin spot ETF listings on grounds that have never been used before, which may have to do with custody or settlement of bitcoin.