Author: 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 the SEC’s rejection of Grayscale’s issuance of a Bitcoin spot ETF was unreasonable and asked the SEC to reprocess Grayscale’s request.
Affected by this, market optimism spread, and Bitcoin rose above the US$27,000 and US$28,000 mark. However, it must be noted that the SEC can still appeal, and even if it re-examines Grayscale’s application, it can also find other reasons to reject the Bitcoin spot ETF. .
To be more precise, the court’s ruling was because it believed that the SEC had adopted double standards for Bitcoin spot and derivatives, but could not explain the necessity of adopting such double standards. Therefore, the court The SEC is required to treat Grayscale’s spot applications equally and not discriminate against Grayscale’s market entity status. It does not 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 .
![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-40baef27dd-fe64db48d6-dd1a6f-1c6801)
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 was whether there is a clear difference between Bitcoin derivatives and spot, and why the SEC rejected the spot ETF when it passed the Bitcoin futures ETF.
The court held that the characteristics of Bitcoin spot are cash transactions and immediate delivery, while derivatives markets, such as futures, rely on the market price of spot for transactions, but usually do not conduct direct delivery, such as CME (CME Group). $1.7 billion in outstanding contracts (at time of filing).
In addition, derivatives are generally subject to more restrictions, such as specific investors can participate, or they can only be traded over the counter (OTC), while spot ETFs 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 spot market of the exchange, 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 concluded that spot ETFs cannot pass this regulatory framework.
Grayscale believes that the SEC’s arguments cannot be justified, specifically in the following points:
- 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%;
- 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. billion, Grayscale is unable to operate or significantly affects the market;
- 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 standards, the judge believed that the SEC’s argument was untenable, especially on the premise that Bitcoin futures products were approved. In terms of review standards, there was no significant difference between Bitcoin spot and futures. Therefore, the judge asked the SEC to re-examine Grayscale application.
But then, the SEC has 45 days to file for an en banc hearing, meaning the case is heard by all judges on the court (17 in this case) rather than just a panel of three judges, as in this original decision.
Follow-up progress: GBTC transforms into 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 to proceed.
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-40baef27dd-ce7d17abad-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 At one time, he held about 700,000 Bitcoins and was the largest public holder.
In fact, Grayscale communicated with the SEC as early as 2016, hoping to issue spot ETFs, but was rejected by the SEC because the market environment and regulatory conditions were immature, and then took the initiative to withdraw 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 has been 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 a discount 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 a Bitcoin spot ETF remains uncertain
Judging from the current market situation, there are multiple Bitcoin spot ETFs currently waiting in line to apply, including Bitwise, BlackRock, VanEck, WisdomTree and Invesco. According to the schedule, the SEC will review these applications before the end of this week. gave a response, and the SEC also postponed the application of 21Shares and ARK Investment Management in early August. Now Grayscale’s victory has made this weekend confusing.
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 There are undoubtedly contradictions in the ETF, but it still takes time to see how it will ultimately be decided 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 market manipulation arguments cannot be used to reject spot ETFs while allowing Bitcoin futures ETFs to be listed. 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.
