Crypto markets have abruptly turned green following digital asset manager Grayscale’s victory against the U.S. Securities and Exchange Commission (SEC) over the regulator’s refusal to convert the Grayscale Bitcoin Trust into an exchange-traded fund (ETF).
A federal judge ruled on Tuesday that the SEC has to reconsider Grayscale’s application to launch an ETF out of its Bitcoin Trust to avoid arbitrariness and inconsistency.
Says the ruling,
“To avoid arbitrariness and caprice, administrative adjudication must be consistent and predictable, following the basic principle that similar cases should be treated similarly. NYSE Arca presented substantial evidence that Grayscale is similar, across the relevant regulatory factors, to bitcoin futures ETPs (exchange-traded products).
The Commission failed to adequately explain why it approved the listing of two Bitcoin futures ETPs but not Grayscale’s proposed Bitcoin ETP. In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. We therefore grant Grayscale’s petition for review and vacate the Commission’s order.”
Grayscale’s win has sparked new speculation on the much-awaited approval of a Bitcoin ETF, and consequently optimism in the now rallying crypto markets.
On the other hand, the potential conversion of Grayscale’s trust into an ETF would involve other dynamics, according to Ryan Selkis, CEO of crypto analytics firm Messari.
Selkis says that if the Trust turned into an ETF, the loss in revenue could hurt one of Grayscale’s biggest investors, Digital Currency Group (DCG), which is already facing large debt burdens, some of which it has defaulted on, according to its creditors.
AND IT COULD KILL DCG.
If Grayscale is able to convert to an ETF, the asset manager’s revenues could decline 60-80% if they’re forced to reduce fees and honor redemptions for the first time in years.
Grayscale is the crown jewel in the DCG portfolio, and its success and cash flows are propping up DCG.”
Last year, Grayscale CEO Michael Sonnenshein said the SEC’s refusal to approve a spot Bitcoin ETF was one of the main causes of last year’s slew of collapses and bankruptcies.
“Had the SEC already approved the spot Bitcoin ETF, allowed GBTC to convert into an ETF already, then a lot of the investor harm that you see in crypto would have been prevented. A lot of these investors would not have gone to offshore exchanges and gotten caught up in some of the businesses that are not regulated by the US the way that Grayscale is.”
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