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Countdown to Midnight: SEC's Decision Looms Over Grayscale's Bitcoin ETF Dispute

Oct 17, 2023 at 07:26 am

The U.S. Securities and Exchange Commission (SEC) is running out of time to appeal the court's decision to overturn its rejection of Grayscale's trust-to-ETF conversion request. If the SEC doesn't take any action before midnight Eastern time, Grayscale's application to convert its Bitcoin Trust (GBTC) into an ETF will be reinstated.

Many industry experts anticipate that the SEC will let the deadline pass, given that the D.C. Circuit Court of Appeals was unequivocal in its judgment 45 days ago, criticizing the SEC's handling of the application as "arbitrary and capricious." The court also noted that the regulator was unfairly treating a spot ETF differently from a similar futures ETF. However, the SEC does have the authority to prolong the dispute if it wishes to scrutinize other aspects of the application.

This decision holds significant implications for the potential creation of a widely accessible, mainstream investment product centered on bitcoin. A spot ETF is anticipated to draw more investors into the cryptocurrency space.

Grayscale initially sought to convert its GBTC closed-end fund, which currently manages approximately $17 billion in assets, into a spot bitcoin ETF in October 2021. Grayscale, a subsidiary of Digital Currency Group, is not the only entity pursuing this approval. Major financial institutions like BlackRock and Fidelity are also awaiting word from the SEC regarding their spot bitcoin ETF applications.

"GBTC remains prepared for ETF conversion pending regulatory approvals,"

stated Jennifer Rosenthal, a spokesperson for Grayscale.

There has been no immediate response from SEC representatives regarding the matter.

Even if ETF applicants emerge victorious, uncertainties persist regarding the timing and ownership of the inaugural product. The SEC's required approvals are comprehensive and involve multiple divisions within the agency. It remains unclear whether the SEC would greenlight several applicants simultaneously or adhere to a timeline based on the order of application submissions. As for the market, experts speculate that the eventual approval of ETFs by the SEC is already partly factored into current prices.

"This makes it somewhat uncertain how much more bitcoin could outperform if a favorable decision from the U.S. Securities and Exchange Commission (SEC) materializes,"

remarked David Duong, Head of Institutional Research at Coinbase Institutional, in a monthly report distributed to subscribers last Thursday.

Read more: Unraveling the ETF Tapestry: Grayscale's Quest

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