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ETF Verdicts Awaited: SEC and Bitcoin Proposals

Martin Walker
Aug 30, 2023 at 11:07 am

The impending deadlines on the horizon mark a crucial juncture for the United States Securities and Exchange Commission, as it grapples with the weighty task of deliberating upon seven distinct applications for Bitcoin exchange-traded funds (ETFs). These ETFs, with the ubiquitous BTC ticker, currently hold a valuation pegged at an impressive $27,440.

As the SEC navigates this intricate landscape, a series of significant dates has taken center stage, with the most recent deadline slated for September 4. These developments unfold against the backdrop of the SEC's recent legal setback in a U.S. federal appeals court in a case pitting it against Grayscale Investments.

In this intricate web of financial intricacies, Bitwise, the investment firm, stands at the precipice of revelation. September 1 looms as the day when Bitwise will learn the fate of its ETF proposal, and the verdict is eagerly anticipated. The subsequent day, September 2, will be a pivotal point as the SEC unveils its verdict on ETF applications submitted by BlackRock, VanEck, Fidelity, Invesco, and Wisdomtree. This information is based on a careful examination of official SEC filings.

In this dynamic milieu, Valkyrie remains in the wings, awaiting the outcome that will be unveiled on September 4.

 Compilation of recent filing dates and imminent deadlines for Bitcoin spot ETF applicants. Source: Bloomberg.
Compilation of recent filing dates and imminent deadlines for Bitcoin spot ETF applicants. Source: Bloomberg.

A noteworthy twist in this saga unfolded on August 29, as the U.S. Court of Appeals rendered a judgment. It deemed the SEC's dismissal of Grayscale's ambition to metamorphose its Grayscale Bitcoin Trust (GBTC) into a traditional Bitcoin ETF as lacking logical coherence. However, it's prudent to note that this legal development doesn't constitute an overarching endorsement for Grayscale's proposal or analogous ones that may emerge in the future. This nuanced interpretation was forthrightly shared by James Seyffart, the perceptive ETF analyst from Bloomberg.

In a candid interview with Bloomberg on that very same August 29, Seyffart expounded that Grayscale's legal victory "undoubtedly" fortifies the prospects for future applicants in the impending wave of ETF endeavors.

Yet, amid the unfolding drama, Seyffart remains cautious about predicting a precise timeline for this unfolding narrative. This caution stems from the SEC's prerogative to wield its discretionary power in elongating its decision-making processes. The commission retains the flexibility to introduce two additional proposed deadlines for each fund application, effectively pushing the ultimate ruling date to the 240th day following the original filing.

For those with vested interests, the calendar aligns all the culmination dates around the mid-March timeframe in the subsequent year.

This brings us to a pivotal question: What courses of action are within the SEC's purview following the watershed moment of the Grayscale verdict?

The aftermath of the favorable verdict on August 29 ushers in a 90-day window for the regulatory body. Within this window, the SEC can either choose to file an appeal with the U.S. Supreme Court or opt for an en banc review, which entails a comprehensive assessment by a full circuit court, capable of overturning a verdict rendered by a three-judge panel.

The trajectory that the SEC is poised to embark upon remains shrouded in a certain degree of ambiguity.

Should the SEC eschew the route of an appeal, the onus then falls on the court to delineate the precise contours of how the verdict's implications unfold. This could entail specific directives, nudging the SEC to bestow its imprimatur upon Grayscale's application or, at the very least, revisit and reconsider it.

In this intriguing tableau, Seyffart underscores two potential trajectories that the regulator might tread.

In one scenario, the SEC could, in a conciliatory gesture, concede defeat and endorse Grayscale's transformative journey from GBTC to a full-fledged Bitcoin ETF.

Conversely, the SEC might opt for a more confrontational stance, potentially leading to the annulment of the listing of Bitcoin futures ETFs in their entirety. Alternatively, the SEC could summon a fresh argument to challenge Grayscale's proposal. Seyffart notes that these two trajectories encompass the spectrum of possibilities.

However, Eric Balchunas, a fellow analyst at Bloomberg focused on ETFs, interjects with an air of skepticism. He casts doubt upon the likelihood of the SEC adopting the path of revoking Bitcoin futures ETFs. This skepticism is anchored in the purported openness of the SEC towards embracing Ethereum futures ETFs, an aspect that tilts the odds against such a drastic measure.

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