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Cryptogambling / SEC softens stance toward spot Bitcoin ETFs

SEC softens stance toward spot Bitcoin ETFs

Publish Date: 16/10/2023
c Bitcoin coin, tags: spot - upload.wikimedia.org

c Bitcoin coin – upload.wikimedia.org

The U.S. Securities and Exchange Commission reportedly will opt against appealing a court decision to approve Grayscale Investments’ application to create a spot Bitcoin exchange-traded fund or ETF.

The demand for a spot Bitcoin ETF has been growing for years in the crypto community, with many arguing that it would make investing in Bitcoin more accessible to everyday investors. It would also help bring digital assets closer to traditional financial markets.

Private wealth management Bernstein said that the spot Bitcoin ETF market could grow to a notable size, reaching 10 percent of Bitcoin’s market cap in two to three years. However, regulators have consistently dismissed applications, citing fraud and manipulation concerns.

Grayscale, a leading digital asset manager, has been pushing for a Bitcoin ETF approval since 2021. It sued the SEC after the watchdog rejected its application in June 2022, arguing that the company had failed to assure it could protect investors from market manipulation.

Grayscale maintained that as the agency had previously approved certain fraud-prevention arrangements for other Bitcoin futures-based ETFs, the same setup should apply to its spot Bitcoin ETF.

The D.C. Circuit Court of Appeals decided in August 2023 that the SEC’s rejection of Grayscale’s proposal was “arbitrary and capricious.” Now, the SEC must review its rejection of Grayscale’s proposal. The regulator retains the right to appeal the ruling based on different grounds, but their recent decision not to suggests the possibility of the SEC softening its stance.

Bloomberg ETF analyst James Seyffart expects new developments in the case by next week. A new SEC response is also expected within the next two weeks.

“No. I do not think they will appeal to the Supreme Court either,” he said via X (formerly Twitter).

Possible developments

The SEC’s move could have been prompted by a letter from the House of Representatives urging the SEC to approve a spot Bitcoin ETF in June, as well as the increase in community interest. Bloomberg senior ETF analyst Eric Balchunas believes there is a 75 percent chance of a spot Bitcoin ETF being approved by the end of 2023.

Seyyfart also reported that ARK and 21Shares’ Bitcoin ETF applications were met with “constructive conversation” from regulators, which typically happens when an ETF is on its way to approval. He said there was a 90 percent chance of SEC approval by around January 10, 2024.

Several financial giants such as BlackRock, Fidelity and Vanguard submitted their ETF applications earlier this year. The SEC has until next year to decide on those applications at the latest.

Impact on Grayscale and Bitcoin

Grayscale Bitcoin Trust (GBTC) recently saw its biggest rally since 2021, with shares jumping 17 percent in August.

Bitcoin, meanwhile, seems to be in a consolidation phase. Although the recent developments are significant, they have not triggered any massive price rally, as the cryptocurrency only saw a modest increase of 0.15 percent, hovering just below $27,000.

Coinbase head of research David Duong has said the market is currently still unpredictable, saying, “Given the current dynamics, it’s uncertain how much more Bitcoin could surge even if the SEC greenlights the ETFs.”

Should Grayscale’s proposal be approved, experts predict that it would lead into an increase of institutional investment into Bitcoin and other major cryptocurrencies, leading to a significant uptick in prices.

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