Research Summary
The Court of Appeals for the DC circuit ruled that the SEC violated the Administrative Procedures Act (APA) by rejecting Grayscale’s application for a spot Bitcoin ETF while approving applications for Bitcoin ETFs based on CME futures. The court ordered the SEC to review its decision in line with the APA requirements. The SEC’s early support for futures-backed ETFs has led to this predicament. The court’s decision has increased the chances for the approval of a spot Bitcoin ETF.
Key Takeaways
Court’s Decision on SEC’s Violation of APA
- SEC’s Arbitrary Rejection: The court ruled that the SEC violated the APA by rejecting Grayscale’s application for a spot Bitcoin ETF while approving applications for Bitcoin ETFs based on CME futures.
- SEC’s Inconsistent Reasoning: The court found that the SEC had not adequately distinguished its reasoning for favouring a futures-based ETF over the similar spot products, which represented a violation of the APA.
- SEC’s Order to Review Decision: The court ordered the SEC to rescind its rejection of the Grayscale proposal and to review its decision in a way that is consistent with the requirements of the APA.
SEC’s Predicament
- SEC’s Compromise with Crypto Industry: The SEC’s early support for futures-backed ETFs, expressed by Commissioner Gensler in 2021, has led to this predicament.
- SEC’s APA Maze: The court used the SEC’s decision to approve futures-based bitcoin ETFs against it, trapping the SEC in an APA maze of its own making.
- SEC’s Potential Reactions: The SEC can appeal, rescind its previous rejection and re-review Grayscale’s application, rescind approvals for futures backed ETFs that use the Grantor trust structure, or concede defeat.
Implications for Spot Bitcoin ETF
- Improved Chances for Approval: The court’s decision has definitely put the SEC on the back foot and dramatically improved chances for the approval of a spot bitcoin ETF.
- Interest from Traditional Financial Sector: The entire traditional financial sector, including heavyweight firms like Blackrock, is poised for a spot bitcoin ETF.
- Opportunity for SEC Chair Gensler: With other key players proposing their own ETFs, SEC Chair Gensler has the opportunity to reshape the agency’s narrative.
Actionable Insights
- Investigate the Potential of Spot Bitcoin ETF: Given the court’s decision and the interest from the traditional financial sector, there is potential for the approval of a spot bitcoin ETF.
- Monitor SEC’s Reaction: The SEC’s reaction to the court’s decision could have significant implications for the crypto industry.
- Consider the Impact of Regulatory Decisions: The court’s decision highlights the importance of regulatory decisions in shaping the future of the crypto industry.
