A spot market bitcoin exchange traded fund (“ETF”), the holy grail of financial products for crypto, is one step closer to reality. On Tuesday August 28th a three-judge panel for the U.S. Court of Appeals finally sided with the Plaintiff Grayscale and rejected the Securities and Exchange Commission’s primary reason for denying the ETF. Immediately after the ruling was announced Bitcoin’s price spiked, rising 5.4% to $27,450–giving much needed positive news to the crypto community. Additionally, crypto-exposed stocks like Coinbase (COIN) gaining 14.9% and MicroStrategy (MSTR) rallying 10.8% surged following the news.

The Court stated the SEC’s reason for the repeated denial was arbitrary and capricious. This was momentous news, being that the Grayscale Bitcoin Trust traded under the symbol GBTC is currently the largest crypto fund with a market cap of roughly $3.6B. That represents a little more than 0.05% of all bitcoin. Trading under the ticker “GBTC”, the offering is based on the price of the bitcoin futures traded on the Chicago Mercantile Exchange (“CME”) which the SEC has allowed, citing that there were sufficient controls within the futures markets to prevent and detect market manipulation. However, the Grayscale filed to convert their GBTC to a spot market ETF which tracks the price of the spot market for bitcoin, the SEC has rejected it countless times citing the spot market does not maintain the same controls for market manipulation as the futures market. Based on the recent ruling, the Court stated this is nonsensical as the futures based ETFs, rely on the same fraud surveillance sharing agreements with the Chicago Mercantile Exchange (CME) — the exchange where most Bitcoin futures are traded. Moreover, the Court found that the futures and the spot markets were >99% the same, dealing another blow to the SEC’s beleaguered arguments. 

After this devastating blow to the SEC’s agenda, the SEC now has forty-five days to appeal the ruling at which point it would go to the Supreme Court or an en banc panel review. Even if it did not appeal or if its appeal was unsuccessful, the SEC could still reject the application(s) on other grounds. 

Research from the team at VTRADER has compiled a list of all the asset managers that have applied for a spot Bitcoin ETF: BlackRock ($10T AUM), Fidelity ($4.5T), Invesco Galaxy ($1.5T), Franklin Templeton ($1.5T), WisdomTree ($87B), VanEck ($61B), GlobalX ($40B), ARK Invest ($14B), Valkyrie ($1B), Bitwise ($1B).  In total, these managers have $17.7T of the Assets Under Management. As anyone can see there is a strong vested interest in making the bitcoin spot ETF available to investors. 

This comes as more bad news for the SEC after taking a devastating defeat just a few weeks ago in SEC v. Ripple. Whereby the judge declared the sale of XRP on crypto exchanges did not warrant an unregistered security offering. This decision upended long held beliefs of the SEC dating back to its interpretation of US v Howey which had become the default test for determining whether an offering was a security. 

Article by Patrick Dane

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