In response to Elliott Z. Stein, a senior litigation analyst at Bloomberg Intelligence, the U.S. Securities and Alternate Fee (SEC) finds itself in a vulnerable position following a recent court judgement that questions its long-standing reasons for denying spot Bitcoin ETFs.
The SEC has historically justified its denials by stating that there is a lack of a regulated crypto market with sufficient size to prevent manipulation. However, the US Court of Appeals for the D.C. Circuit sided with Grayscale, a leading bitcoin asset management company, declaring the SEC’s decision to be “arbitrary and capricious.” The court noted that the SEC had previously approved a Bitcoin futures product, providing a precedent that should continue to identify Bitcoin ETFs.
The court decision comes at a time when the market is growing more confident that spot Bitcoin ETFs will be approved. According to analysts James Seyffart and Eric Balchunas, there is a 75% chance of approval this year and a 95% chance by the end of 2024.
Stein expresses concern that the SEC may face further legal problems as a result of their switch to new grounds for rejection, such as custody issues.
A series of choices must now be made by the SEC. Although the forceful wording of the ruling makes the court’s decision considerably less intriguing, it might be enchanting. In contrast, the SEC may approve some or all of the nine applications for a spot Bitcoin ETF that are now pending, including those from major participants like Ark, Bitwise, and BlackRock. This decision must be made by the regulator within a maximum of 240 days, with January 10, 2024 as the primary deadline. Another option is to give you a fresh justification for the denial, although this move would invite more legal action.
Gary Gensler, the chair of the SEC, must decide whether to change with the times or to stand his ground and maybe spark new legal disputes. The decision might have significant effects on the cryptocurrency sector and the larger financial system.