In a twist of recent events, the Securities and Exchange Commission (SEC) might face a challenge over its decision involving the denial of a spot Bitcoin ETF (Exchange Traded Fund) application by Grayscale. This development follows a federal court’s directive which necessitates the commission to scrutinize its refusal to transform the Grayscale Bitcoin Trust (GBTC) into an ETF. JPMorgan, in its recent report, highlighted this shift as predicated on the arbitrariness of SEC’s decision, given the regulator’s relatively contrasting disposition towards futures-based Bitcoin ETFs.
Interestingly, the argument by the court saw the inherent risks of fraudulent activities and manipulations in the spot market as common across both futures and spot products, primarily due to the high correlation seen between the “spot Bitcoin market and the CME Bitcoin futures market”. This connotation is critical, warranting that the SEC has no viable recourse for permitting futures-based Bitcoin ETFs while simultaneously denying spot ETFs.
If the SEC were to justify its denial for Grayscale’s proposal to convert GBTC, it could, theoretically, imply a retroactive withdrawal of its previous consent for futures-based Bitcoin ETFs, an action that screams more destructive and embarrassing for the regulator, according JPMorgan. On the flip side, an approval for Grayscale’s request might not necessarily transmute into a significant shift for the global crypto market.
So far, spot Bitcoin ETFs, despite holding a foothold outside the U.S for quite a while, haven’t made a noticeable drag in garnering substantial investor interest. Additionally, both futures-backed and physically backed Bitcoin funds haven’t been particularly crowd-pulling since the second quarter of 2021. Spot-based ETFs illustrate certain benefits for investors such as indefinite holding periods and the elimination of rollover costs associated with futures ETFs. However, notwithstanding these advantages, the question arises whether the potential launch of spot-based ETFs can really trigger a tide of mainstream investments.
On the surface, this standoff between the court and SEC presents a challenge to the regulator’s decision-making process and transparency. As we anticipate the outcome, it is clear the implications this development may hold for the status and regulation of cryptocurrencies are yet to be definitely known. While it brings the eventual approval of spot Bitcoin ETFs closer, it doesn’t necessarily promise a complete revolution of the crypto market landscape.
Source: Coindesk
