Understanding how different parties view the Grayscale victory Predicting the SEC’s follow-up actions

Compiled by: Song Xue, LianGuai

On August 29th local time, Grayscale achieved a major victory in court against the U.S. Securities and Exchange Commission (SEC). The Washington D.C. Circuit Court of Appeals approved Grayscale’s petition to review the SEC’s rejection of its application to convert GBTC into a spot Bitcoin ETF. The hope for approval of a spot Bitcoin ETF has been reignited.

Influenced by this news, Grayscale’s Bitcoin Trust surged 17%, and the entire cryptocurrency market finally seemed to show signs of recovery. There are different opinions among industry insiders regarding Grayscale’s interim victory. LianGuai has compiled various viewpoints for readers to enjoy.

What Grayscale has to say:

Grayscale CEO Sonnenshein: We appreciate the favorable ruling by the Washington D.C. Circuit Court of Appeals and thank investors for their support and encouragement. In addition, the Grayscale legal team is actively reviewing the court’s opinions.

Grayscale Chief Legal Officer Craig Salm: We appreciate the Washington D.C. Circuit Court of Appeals’ opinion, which recognizes the direct question raised in this case about equal treatment under the law. We also greatly appreciate the legal teams from Munger, Tolles and Olson, Davis Polk and Wardell. Our next step is to closely collaborate with the SEC to develop a plan to introduce GBTC as a spot Bitcoin ETF on NYSE Arca.

Positive viewpoints:

Galaxy Digital Head of Liquidity Passive Strategies LianGuaiul Cappelli: The court’s decision is a watershed moment in this field. ETFs are fundamental products that drive the trading of commodities, including gold and oil, because investors want access. If Grayscale ultimately succeeds, the broader Bitcoin and cryptocurrency market should respond positively, and there will be some market volatility with increased Bitcoin demand.

Jeremy Senderowicz, Vedder Price Law Firm: Based on the court’s decision, this is a devastating blow to the SEC’s decision to disallow these products from being listed. If this decision stands, it nullifies the core basis for the SEC’s rejection of all spot Bitcoin ETFs over the past few years.

Rahsan Boykin, General Counsel of Hashflow: This is an interesting ruling, considering the way the judge dismantled the SEC’s arguments… It appears to be a rather harsh stance in my opinion.

Owen Lau, Analyst at Oppenheimer & Co: This ruling adds momentum to the digital asset industry following the Ripple case—now the market is filled with great optimism.

James Seyffart, Analyst at Bloomberg Intelligence: While the possibility of GBTC being converted into an ETF has increased, it’s not 100%. The SEC cannot use the arguments of fraud and manipulation that they used in past rejection letters to reject a spot ETF. Whether the SEC will ultimately approve the listing of a Bitcoin futures ETF depends on Gary Gensler’s leadership and the belief that the SEC does not allow the existence of a Bitcoin ETF.

James Seyffart, Bloomberg ETF analyst: Grayscale’s victory in the lawsuit does not mean that GBTC can be freely converted into an ETF, but it does move the conversion forward.

Jake Chervinsky, Chief Policy Officer of the Blockchain Association: Grayscale’s victory against the SEC is “huge”. The D.C. Circuit Court has just brought great embarrassment to the SEC, but the ETF has not yet been approved. The D.C. Circuit Court firmly rejected the SEC’s view that Grayscale’s ETF proposal is not aimed at preventing fraud and manipulation. The SEC has been rejecting Bitcoin ETF spot proposals for a whole decade with this reason. That era is now over. I have no doubt that we will eventually get a spot Bitcoin ETF. The only question is whether the SEC wants to make itself more miserable. Trust me, if there is another denial, there will be another lawsuit, and I strongly recommend the U.S. Securities and Exchange Commission to “quickly” make a choice.

Negative viewpoint:

Jeff Dorman, Chief Investment Officer of Arca: The world’s largest digital asset will need a “significant” catalyst to break through range restrictions. He warns that it is “too early” to consider this ruling as a panacea for Bitcoin’s continued rise, and emphasizes that “real follow-up action will only happen when BlackRock and other companies start truly promoting Bitcoin in their filings.” Dorman pointed out that most of this year has been dull for digital asset investors, saying, “In March, people lost a lot of confidence in U.S. regional banks, which is a real positive for Bitcoin’s price.”

Predictions for SEC’s follow-up actions:

SEC spokesperson: The agency is reviewing the court’s ruling and has 45 days to request a rehearing by the full D.C. Circuit Court, and if the appeals court declines to hear the case, the SEC will have 90 days to request the U.S. Supreme Court to review the case.

Arie Heijkoop, partner at Haynes Boone law firm: It is expected that the SEC will not appeal. The court has provided a strong explanation of the deficiencies in the SEC’s decision, so it is unlikely that the decision will be overturned. If the U.S. Securities and Exchange Commission still refuses to approve spot Bitcoin [products], this decision does leave room for the SEC to review its denial of Grayscale and clarify other reasons for rejection.

Matt Hougan, Chief Investment Officer of Bitwise Asset Management: Based on the decision to appeal, the SEC will face several choices. One is to approve all or part of the 9 spot Bitcoin ETF applications as soon as possible. The SEC may agree with the court’s ruling and issue an order allowing the exchange (NYSE Arca) where Grayscale’s ETF is listed to continue trading the Grayscale fund, or approve other funds that have applied. The second choice is to delay, if permitted by law. The third choice is to present new reasons for denial and face the possibility of Grayscale filing another lawsuit. The SEC can no longer use the argument that the market size is insufficient to prevent manipulation, but it may present other arguments.

Bloomberg Analyst Seyffart: It is still uncertain whether the SEC will make a new decision in the coming weeks or months, or require Grayscale to submit Form 19b-4 (used to notify regulators of proposed rule changes). The SEC may find a previously unused reason to reject the conversion of GBTC to an ETF, such as potential arguments against Bitcoin custody.

Impact on the market:

Grayscale’s Bitcoin Trust (GBTC): It rose nearly 17% in secondary trading on the same day, reaching $20.56. The BTC value per share of GBTC rose by 7.18% to $25.09. Assets increased from $16.2 billion the previous day to $17.4 billion. The trading volume of GBTC reached its highest level since June 21, 2022, measured by value.

CryptoSea Anonymous Founder Crypto Rover: The court ruling that the SEC’s decision to reject Grayscale’s Bitcoin Spot ETF is incorrect. What’s next? It’s possible that all other Bitcoin Spot ETFs will be approved. The question is actually when, not if, they will be approved. This ETF is a fully regulated spot ETF, not a synthetic version. Spot ETF means that each share issued must be backed by actual Bitcoin at a 1:1 ratio. Given this requirement, I believe it could be a catalyst for the start of a new bull market.

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