On Tuesday, a three-judge panel of the District of Columbia Court of Appeals in Washington granted victory to crypto asset manager Grayscale in its lawsuit against the U.S. Securities and Exchange Commission (SEC) related to the conversion of the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin exchange-traded fund.
The court had ruled that the SEC’s decision to deny Grayscale was “arbitrary and capricious” and that the federal securities regulator failed to give an adequate explanation as to on what grounds the application was rejected.
The court’s ruling was a big blow to the SEC, which has been in the middle of a widespread crackdown on the crypto sector.
Grayscale CEO Says Court Decision Is A Victory For The Crypto Market
Speaking in an interview with Yahoo Finance, Grayscale CEO Michael Sonnenshein said the decision was an “overwhelming victory” not just for his company and its investors but for the whole investment and crypto community as well. He also noted that the markets need to be a little patient and not get too carried away with the court’s decision.
The ruling only requires the SEC to revisit and review Grayscale’s application and not approve it. Meanwhile, the SEC has time until October to file an appeal to re-hear the case. Officials from the agency have said they are currently reviewing the decision.
As soon as news came out that Grayscale had won the hearing, crypto markets started to rally. Bitcoin (BTC) briefly touched $28,000 on Tuesday, rising more than 5%, before dropping to the $27,000 range on Wednesday. Bitcoin mining companies Marathon Digital and Riot Blockchain also saw their shares soar by 18% and 24%, respectively.
The federal court’s decision could possibly improve the chances of other asset managers who had filed an application to get their Bitcoin-based exchange-traded products (ETPs) approved by the SEC.
Wall Street giants like BlackRock, Fidelity, and Invesco are among the applicants who want to list their Bitcoin spot ETFs in the U.S. stock markets.
Grayscale Is The World’s Largest Corporate Bitcoin Holder
The Grayscale Bitcoin Trust or GBTC is the world’s largest trust holder of the apex cryptocurrency. At present, GBTC holds 624,366 BTC worth over $16 billion, making Grayscale the largest single Bitcoin holding company in the world.
Usually, the fund follows the price of Bitcoin but since February 2022, GBTC shares have been trading below the net asset value (NAV) ratio of BTC. On Wednesday, GBTC was down 4% and was trading at an 18% discount.
If the SEC is to allow Grayscale to convert GBTC into an ETF, then the discount mechanism will be immediately eliminated and the fund will trade at a premium over Bitcoin.
Recent Court Rulings Have Been A Boost For The Crypto Market
In a landmark ruling in July, a U.S. Judge in the Southern District of New York said that XRP tokens issued by Ripple Labs were not a security when sold to the general public via crypto exchanges and could only be considered as such when sold directly by the company to institutional investors.
The decision was also a major blow to the SEC, which had sued Ripple Labs in 2020 for violating federal securities laws and raising over a billion dollars in funding from the sale of XRP tokens, which the agency claimed to be unregistered securities.
The SEC has also locked horns with Coinbase and Binance, two of the largest cryptocurrency exchanges by trading volume, arguing that both platforms allowed investors to trade unregistered securities in the form of cryptocurrencies.
The agency even asked the companies to delist all digital assets except Bitcoin and Ethereum from their exchanges as they were apparently not registered as securities brokers in the U.S. Both Coinbase and Binance denied any wrongdoing and have declared to continue the fight until proven guilty.
Sonnenshien says he is confident that the recent legal proceedings and favorable legislation for the crypto economy will provide much-needed positive momentum for the industry.
Last month, the House Financial Services Committee, led by the Republican caucus, passed legislation that aims to clarify the doubts surrounding the powers of the Commodities Futures Trading Commission (CFTC) and the SEC over digital assets.
The legislation states that from here onwards, the CFTC will be provided with jurisdiction over digital commodities, while the SEC will have jurisdiction over digital assets offered as part of an investment contract.
The committee also issued directives for firms to register with the SEC and also asked the regulator to come up with bespoke rules to govern crypto.
Bitcoin Halving Vital To The Industry
Sonnenshein said it was encouraging to see crypto becoming a nonpartisan issue. He expects the markets to get another boost early next year with Bitcoin’s halving cycle that could lead to the cryptocurrency reaching an all-time high in value.
The Grayscale chief pointed out that a never-seen-before environment surrounding crypto could be one of the catalysts that will continue to “underscore the staying power of the asset class”.