Grayscale Triumphs: SEC’s Grip on Crypto ETFs Loosens

Abraham George Macro Musings

September promises significant developments in the crypto domain. The US District of Columbia Court recently favored Grayscale Investments, rebuffing the SEC’s opposition. The court ruled that the SEC had been unjust in denying Grayscale's bid for an exchange-traded fund (ETF) pegged to Bitcoin's price.

Historically, asset managers have advocated for the SEC’s approval of a spot Bitcoin ETF, reasoning it allows investors to gain exposure to Bitcoin without direct ownership. Despite this, the SEC, while authorizing several futures ETFs, continuously deflected these appeals with unsatisfactory explanations. Frustrated by the SEC's intransigence and its seemingly arbitrary regulatory approach, many in the crypto sector sought legal clarity through the judiciary, which, commendably, has often sided with the investment community.

Grayscale's legal challenge 14 months ago seemed a long shot, with minimal anticipation of a victory against the SEC. Yet, astoundingly, the judgment was unanimous among the three presiding judges.

Historically, the judiciary often deferred to the SEC, the apex federal regulator known for detecting market malpractices. However, times have changed. Increased scrutiny of the SEC’s actions and motives combined with the judges' improved understanding of complex financial instruments has altered the dynamics.

The court emphasized that Grayscale's proposed Bitcoin ETF mirrored already sanctioned bitcoin futures ETFs. Hence, it labeled the SEC’s rejection as "arbitrary and capricious," highlighting the regulatory body’s flawed reasoning.

This setback, particularly for Gary Gensler, the SEC Chairman, is monumental, especially on the heels of their recent loss in the Ripple case. It also shines a ray of hope for asset management giants like ARK Capital, Fidelity, and Invesco, who've had their ETF proposals rejected previously. With major players like BlackRock, Wisdom Tree, VanEck, and Bitwise in the mix, it remains to be seen how Gensler will navigate the Grayscale precedent.

Many of these firms have shown interest in collaborating with Coinbase, the US's premier crypto exchange. Yet, as Coinbase faces legal action from the SEC and has in turn launched its counter-lawsuit, it strengthens the narrative against the SEC's current trajectory.

Such events spotlight the pressing need for a leadership change and a revamp at the SEC, urging a shift towards investor-centric regulations rather than mere enforcement.

This month, Gensler is slated to testify before Congress twice, addressing the Senate Banking Committee on September 12 and the House Financial Services Committee on September 27. Given the past sessions' drama, these hearings promise to be riveting. Having observed Gensler for over two years, one thing's clear: he isn’t easily rattled nor embarrassed. After all, he's as thick-skinned as a rhinoceros.

DISCLAIMER

---

If you received value from this post, and you’d like to send some back, or if you’d like to signal to me to continue spending time on these types of explorations, feel free to buy me coffees (thank you!):

So, there we go. Thanks for reading Breezy Briefings. If you enjoyed this, I'd really appreciate it if you could take a second and tell a friend. Honestly. It makes such a big difference.

Forward this email. Recommend the newsletter. Share on Twitter, WhatsApp, Telegram, LinkedIn, Slack, wherever!

Join Breezy Briefings’ Official Telegram Channel: https://t.me/BreezyBriefings

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.