Grayscale Wins ETF Lawsuit over SEC, Why Is Market Still Dumping?

September 4, 2023

Welcome to another Crypto Weekly Digest brought to you by VirtualBacon.

In this week's edition of our cryptocurrency newsletter, we delve into Grayscale's recent legal win. We'll clarify what this means for investors and the crypto market at large. We'll also discuss the recent delays surrounding other ETF approvals. As always, wrapping up, we'll provide a sharp overview of the current market sentiment, highlighting both the standout and underperforming coins of the week and a concise analysis of key cryptocurrencies and the forces shaping their trajectories.

Grayscale Wins SEC Bitcoin ETF Lawsuit over Review

Grayscale Investments, a major player in crypto asset management, recently secured a pivotal win against the SEC.

The court battle centered around Grayscale's desire to convert its Grayscale Bitcoin Trust (GBTC) into a Bitcoin ETF. The SEC had initially rejected the application, claiming that it was not structured to prevent fraudulent activities. Grayscale didn't take this lying down and went to court.

The U.S. Court of Appeals found the SEC's denial to be "arbitrary and capricious," overturning the decision. While this doesn't guarantee the conversion to an ETF, it places Grayscale back in the review queue. Grayscale CEO Michael Sonnenshein announced that the legal team is actively reviewing the court's decision.

So what's next? The SEC could either appeal the ruling within 45 days, deny the application on different grounds, or finally approve the GBTC-to-ETF conversion. This case could set a precedent, possibly opening the gates for future Bitcoin ETFs.

Grayscale's GBTC is not a minor fund; it manages over $14 billion in assets. This lawsuit and its outcome are particularly significant given the scale and implications for the broader crypto market.

What Grayscale's Legal Victory Means for Crypto

Grayscale's recent court win over the SEC not only revitalizes its own prospects but also reverberates through the entire crypto industry. First and foremost, this decision takes the crypto space a step closer to having a spot Bitcoin ETF. The SEC's previous reasoning for rejection is now deemed insufficient by the court, which may render it less viable for future denials.

The victory also acts as a potential catalyst for bullish market sentiment. If Grayscale does get approval for its spot Bitcoin ETF, we can anticipate an inflow of capital from traditional markets into crypto, boosting its mainstream acceptance. Additionally, this ruling calls out the SEC for its arbitrary behavior in denying crypto ETFs—a rare judicial critique that could force the agency to reevaluate its stance on crypto.

The clock is ticking for the SEC, which has a limited window to appeal. Meanwhile, other firms like BlackRock, ARK Invest, and Fidelity, who have their ETF applications in the pipeline, might find the landscape more favorable for approvals. The SEC can keep delaying, but this ruling may just have fast-tracked the entire review process, potentially bringing a tidal change in how crypto ETFs are handled in the United States.

Grayscale’s Win is NOT an ETF Approval

While Grayscale's legal triumph has sparked optimism, it's crucial to temper expectations. The court victory doesn't automatically green-light Grayscale's Bitcoin ETF; it merely sends the application back to the SEC for reconsideration.

The SEC still holds the cards and can either appeal the ruling or provide an alternate reason for denial. Furthermore, the court's decision doesn't mandate the SEC to approve other pending ETF applications. In short, while this win breaks some barriers, it's far from a conclusive victory lap for either Grayscale or the broader crypto ETF landscape.

SEC Delays Decision on All Bitcoin ETF Applications

With the buzz around Grayscale's courtroom win over the SEC and growing anticipation for the debut of the first Bitcoin ETF, optimism was in the air. However, the mood was sobered when news broke that the SEC is delaying decisions on all spot Bitcoin ETF applications, including that of industry giant BlackRock.

Despite a recent court ruling that criticized the SEC's ETF rejections as "arbitrary and capricious," the regulatory body is exercising caution. It has pushed back deadlines for all six new ETF applications from firms like BlackRock, Fidelity, WisdomTree, and others. This delay allows the SEC to extend existing comment periods, encouraging more public feedback before making a final call. Specific new deadlines range from October 16 for Bitwise to October 19 for Valkyrie.

The SEC has up to 240 days from the start of its review process to make a decision and has traditionally utilized this entire period. Bitcoin's price dipped by 4.1% to $26,100 following the news, signaling market disappointment. This move by the SEC, while not surprising to regulatory observers, puts a damper on the high hopes that were building for a fast-track approval of the first Bitcoin ETF.

Despite this minor setback, the general consensus in the industry remains optimistic. The prevailing view is that the approval of a spot Bitcoin ETF is not a question of "if," but "when." This sentiment is even echoed by former SEC Chair Jay Clayton.

In a recent interview, Clayton stated that the increasing backing from major financial institutions for spot Bitcoin investment vehicles marked a significant shift. He emphasized that approval for such ETFs is "inevitable," considering the strong correlations between Bitcoin and Bitcoin futures. With the SEC having an additional 45 days to make a decision, Clayton expects to see "progress on this going forward," reaffirming the industry's optimistic outlook.

Final Thoughts

Based on past behavior, it's unlikely that we should expect the SEC to rush a decision this year. The SEC has a 240-day window for each application and has historically used this time to the fullest, as we saw with the VanEck application in 2021.

When it comes to potential approvals, industry giants like BlackRock, Invesco, and Fidelity stand out. BlackRock, in particular, holds an impressive record of 575 ETF approvals with only one rejection, making them the likely pioneer for Bitcoin spot ETFs. Don't be surprised if the first approval doesn't roll in until March of next year, and keep an eye on BlackRock as the one to potentially make it happen.

Best Performing Coins of The Week

Worst Performing Coins of The Week

Altcoin Events

Maker ($MKR)

We begin our overview with Maker, a coin that has experienced a 12.1% gain over the past week.

Maker's uptick is closely tied to its "Endgame" announcement, a plan to reimplement the Maker Protocol on a new blockchain, NewChain. Rune Christensen's social media reveal of this plan has clearly fueled investor enthusiasm, reflected in Maker's price surge.

However, the crypto community remains cautious. The ambitious $100 billion target for dai's supply and the choice of Solana's codebase for NewChain raise both hopes and questions. The world watches as Maker embarks on this pivotal phase, hoping it fulfills its high-reaching goals.

XDC Network ($XDC)

The second coin we will look at is XDC, a coin that saw a 12.77% gain over the past week.

XDC's recent rise can be attributed to the announcement of its partnership with a major supply chain management platform. This collaboration aims to leverage XDC's blockchain for real-time logistics data, earning the coin a spike in investor interest.

While the partnership signals a promising expansion into new use-cases for XDC, it's not without its caveats. Critics point out that the project will face stiff competition from established players in the logistics sector. The crypto community remains hopeful yet watchful, anticipating that the new partnership could usher in a broader acceptance of XDC's capabilities.

Sui ($SUI)

The final coin we will look at is SUI, a coin that has experienced a massive 18.7% drop this week.

SUI is drawing attention for an upcoming unlocking event that will release 35.6 million tokens, valued at $18.7 million. This significant sum represents about 5% of the coin's current circulating supply and could potentially be aimed at rewarding early supporters through the ACES program.

This impending release has fueled concerns, contributing to the coin's sharp decline. However, SUI's fast-growing user base, which recently hit 6 million, offers a ray of hope that could counterbalance the bearish outlook.

Investors remain cautious as they monitor how this event could shape SUI's market dynamics in the coming days.

In this week's newsletter, we delved into Grayscale's landmark legal victory over the SEC, a win that has significant implications but doesn't automatically open the floodgates for Bitcoin spot ETFs. Just as optimism was peaking, the SEC threw a curveball, announcing delays on all spot Bitcoin ETF applications, including those from industry juggernauts like BlackRock and Fidelity.

Despite this minor setback, the consensus remains that a spot ETF is more a question of "when," not "if," a sentiment echoed by the former SEC chair. We also took a moment to examine the top market gainers and losers of the week, shedding light on the key factors driving their performances. Stay tuned for more insights in our next edition!

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