In a momentous turn of events, Grayscale Investments, a major player in the crypto asset management industry, emerged victorious in a legal battle against the US Securities and Exchange Commission (SEC) over the creation of a Bitcoin ETF, the result of which also boosted the price of Bitcoin itself.
The US Court of Appeals ruled that the SEC’s rejection of Grayscale’s application for an exchange-traded fund (ETF) of Bitcoin was “arbitrary and capricious,” leading to a significant change in the landscape of digital asset investments.
Summary
SEC loses lawsuit against Grayscale over Bitcoin ETF and boosts the crypto’s price
The resounding victory for Grayscale Investments at the appeals court reverberated through the cryptocurrency market, impacting the price of Bitcoin.Â
The court’s ruling, has instilled new confidence in investors and stakeholders. This newfound confidence in the regulatory landscape has led to a surge in demand for Bitcoin, driving up its price.
The market’s interpretation of this legal victory as a positive precedent for wider acceptance of investment in digital assets catalyzed increased trading activity, ultimately contributing to Bitcoin‘s remarkable price growth.
The issue between Grayscale and the SEC and the influence on Bitcoin’s price
The crux of the issue revolves around Grayscale’s persistent efforts to turn its over-the-counter Grayscale Bitcoin Trust (GBTC) into a publicly tradable ETF, a move that had been met with skepticism by the regulator.Â
The SEC‘s initial position stemmed from concerns that the proposed products did not have sufficient safeguards against fraudulent and manipulative activities in the cryptocurrency market.
However, Grayscale did not take this rejection lightly. On the contrary, the company took legal action against the SEC, arguing that the reasons for the rejection were not adequately substantiated.
The recent US Court of Appeals ruling, dated 29 August, marks a pivotal moment in the ongoing dialogue between regulators and stakeholders in the cryptocurrency industry.
The central role of the Court of Appeals judge in the case against the SEC
Judge Neomi Rao of the US Court of Appeals played a central role in this ruling.
She granted Grayscale’s request for review and subsequently reversed the SEC’s order denying GBTC’s price application.
A crucial element of Judge Rao’s position is that the SEC did not provide a comprehensive justification for its decision to reject Grayscale’s proposal.
However, it is crucial to note that this victory does not guarantee an automatic green light to price Grayscale’s Bitcoin ETF.
In response to this momentous development, Michael Sonnenshein, Grayscale’s CEO, took to X (formerly Twitter) to report that the company’s legal team is diligently reviewing the court’s opinion.
This demonstrates Grayscale’s commitment to fully understanding the implications of the ruling and pursuing its potential avenues.
The trajectory of Grayscale’s victory
The trajectory that led to this legal victory dates back to 29 June 2022, when the SEC first rejected Grayscale’s attempt to convert GBTC into a spot ETF.
Soon after, Grayscale’s senior legal strategist Donald B. Verrilli Jr. a former US Solicitor General, filed a petition for review with the US Court of Appeals for the District of Columbia Circuit.
Sonnenshein expressed his disappointment and vehement disagreement with the SEC’s verdict, a sentiment that resonated with the cryptocurrency community.
At the center of this saga is the Grayscale Bitcoin Trust, a financial instrument that represents the largest Bitcoin fund traded over-the-counter. This fund boasts as much as $14 billion in assets under management, underscoring its importance in the cryptocurrency investment landscape.
A path not without difficulties
However, the fund’s path has not been without difficulties. GBTC’s shares have suffered a substantial discount of nearly 50% to their net asset value due to ongoing litigation with the SEC and concerns about its parent company, Digital Currency Group (DCG).
Key milestones in this path include Grayscale’s decision to discontinue significant agreements with its partner, Genesis Global, a digital currency broker.
In addition, Genesis Global’s suspension of withdrawals due to the market turmoil triggered by the collapse of the FTX cryptocurrency exchange, as well as the financial strains sustained by the bankruptcy of cryptocurrency hedge fund Three Arrows Capital, have cast a shadow over the stability of the cryptocurrency ecosystem.
As we approach January 2023, a revelation emerges: DCG is grappling with more than $3 billion in debt, suggesting a $500 million divestment of the venture capital portfolio.
Genesis Global, on the other hand, bears the burden of as much as $900 million owed to users of the Gemini Earn program, which further clarifies the complexities of the financial web woven within the blockchain landscape.
Conclusions
In conclusion, the recent legal victory obtained by Grayscale against the SEC represents a significant step forward in the evolution of cryptocurrency investment instruments.
Thanks to this news, many investors have regained confidence in the industry, boosting positive sentiment toward Bitcoin and consequently the price as well.
The ruling highlights the need for regulators to provide transparent and robust justifications for their decisions in the rapidly evolving cryptocurrency landscape.
As the industry continues to mature, this ruling could potentially set a precedent for future engagements between cryptocurrency firms and regulators, shaping the contours of digital asset investments for years to come.
