Yesterday, on August 29, the positive court ruling in the Grayscale vs. SEC case was definitely the main topic within the crypto community. The euphoria in the market and media is similar to the one that followed the court decision in Ripple vs SEC.
Let's dive into the specifics: what is Grayscale, the confrontation with the SEC, the recent court ruling, and the subsequent market reaction.
What is Grayscale
Grayscale Investments is a digital currency asset management company that was founded in 2013. In the same year, Grayscale launched its flagship product, Bitcoin Investment Trust (GBTC).
The Grayscale Bitcoin Trust (GBTC) holds Bitcoin assets. Buying the shares of GBTC means owning a piece of the trust, which contains some amount of Bitcoin. GBTC is traded on the stock market, making it accessible to a wider range of investors.
There are two interesting details about trusts like this one:
1) the share price can differ from the value of the asset it is secured by. When lower, it is a discount; when higher, it is a premium.
2) such instruments mainly attract large institutional investors, so the value of the premium or discount can reflect their interest in the asset.
The chart below shows the historical percentage of Bitcoin price to GBTC price.
Later, Grayscale introduced trusts for other cryptocurrencies, but the main focus was always on Bitcoin. The full list can be found here or at the screenshot below. There are also Ethereum Classic, Ethereum, Litecoin, etc.
The company initially bet on launching a spot Bitcoin ETF. However, at that time, it never came to life due to the lack of regulatory framework for such investments.
Grayscale’s problems with the SEC
In 2021, Grayscale faced some challenges when the trust's price traded at a discount due to easier access to cryptocurrency. In October, the company asked the SEC to allow it to convert GBTC into a spot Bitcoin ETF. Later, in June 2022, the regulator rejected the application, stating that this market is vulnerable to manipulation and dangerous for investors. Grayscale has filed a lawsuit against the SEC.
In December 2022, the SEC issued a legal report in the GBTC litigation, clarifying the difference between previously approved futures Bitcoin ETF and spot Bitcoin ETFs. The position consists of three arguments:
1. These products contain different underlying assets: spot bitcoin vs. futures contracts/cash/cash equivalents.
2. These underlying assets are traded on different markets: spot Bitcoin ETF on uncontrolled crypto exchanges vs. futures Bitcoin ETF on the Chicago Mercantile Exchange (CME), which is controlled by the CFTC.
3. Due to the presence of regulatory agencies, the futures Bitcoin ETF market is less susceptible to manipulation than the price of spot Bitcoin, which is traded on uncontrolled platforms.
The court ruling in Grayscale vs. SEC case
According to the August 29 filing, the court decreed that the SEC must reconsider the application to convert a GBTC trust into a spot Bitcoin ETF. The ruling was handed down by US Court of Appeals District Judge Neomi Rao.
In March, during oral arguments, Judge Rao said that the SEC had "offered no explanation" for Grayscale’s dismissal.
The ruling does not guarantee the listing of a grayscale spot Bitcoin ETF; it only obliges the SEC to review the application. The regulator can reject it again, just as it does to other applications for spot Bitcoin ETFs. However, all that has not stopped the euphoria in the crypto market.
Market Reaction on Grayscale win
Bitcoin reacted with a strong growth of 5.5% over the past day. Amidst the news, the price reached $28,142. Subsequently, the price dropped, and now BTC is trading at around $27,400.
ETH has grown by 4.5%, reaching $1,745. Currently, the price is about $1,718. In general, the whole market is "green".
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