Michael Sonnenshein, CEO of Grayscale Investments, predicted that the stage is now set for “an environment around crypto that we have never seen before” after winning a “resounding victory” over the Securities and Exchange Commission this week ) had achieved.
A three-judge panel of the District of Columbia Court of Appeals in Washington said Tuesday the SEC had been “arbitrary and capricious” in denying Grayscale’s request to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded spot bitcoin -Convert funds.
A spot bitcoin ETF would allow investors to gain exposure to the world’s largest cryptocurrency without having to own it, potentially increasing mainstream adoption of digital assets.
Sonnenshein said in an interview with Yahoo Finance that the decision was “an overwhelming victory not only for Grayscale and our investors, but for the investment and crypto community as a whole.”
Grayscale CEO Michael Sonnenshein in 2022. (Arturo Holmes/Getty Images)
The decision could increase the chances of other asset managers getting their Bitcoin products approved. The world’s largest asset manager BlackRock (BLK) filed with the SEC in June to create a spot Bitcoin ETF. Coinbase (COIN) would be the custodian for these bitcoin holdings.
“We have to be a little patient”
However, it is not yet clear whether spot bitcoin offerings are a sure thing. The federal appeals court ruling only requires the SEC to review Grayscale’s motion, not approve it. And the SEC has until mid-October to request a new hearing on the case. It was said that the decision was being examined.
“We have to be a little patient,” Grayscale’s Sonnenshein said.
The uncertainty could explain why a rally in cryptocurrency companies and digital assets stalled on Wednesday after spiking on Tuesday in the hours after Grayscale’s ruling was released.
Bitcoin (BTC-USD) briefly touched $28,000 late Tuesday afternoon but fell to nearly $27,000 on Wednesday. It’s still up 64% year-to-date.
The story goes on
Coinbase stock fell 1.2% on Wednesday, while bitcoin miners Marathon Digital (MARA) and Riot Blockchain (RIOT) fell 3% and 2.4%, respectively. All three posted double-digit percentage increases on Tuesday and are up significantly year-to-date.
The Grayscale Bitcoin Trust, the world’s largest trustee of Bitcoin, lost more than 4% on Wednesday and was trading at a discount of 18%, according to YCharts.
If the trust is allowed to be converted into an ETF, the discount ceases immediately.
The Greater War
The SEC is struggling with the cryptocurrency industry on several other fronts. Since the start of 2023, the SEC has charged 19 different crypto players with securities law violations, including exchanges like Coinbase and Binance that allow investors to trade digital currencies. The Grayscale decision has no impact on these cases.
The key message from the SEC in many of these securities cases is that cryptocurrencies are securities and should therefore be registered with the agency.
So far, however, the courts have been unclear on how digital currencies should be treated, leading to uncertainty over how the government’s action could play out.
Analisa Torres, a U.S. judge in the Southern District of New York, said on July 13 that a digital token issued by Ripple Labs is a security only if it is sold to institutional investors and not if it is sold by the broader public purchased by the public.
Then, on July 31, U.S. Judge Jed Rakoff contradicted that specific view in his case in which the SEC alleged that stablecoin issuer Terraform Labs sold unregistered securities.
He noted that the way a crypto token is sold – whether through an exchange or directly to institutional investors – has no bearing on whether a reasonable investor would expect promise of profits. Rakoff ruled that the SEC’s case against Terraform Labs founder Do Kwon could proceed.
“The staying power of the asset class”
Sonnenshein said he is encouraged that recent legal decisions, combined with some movement in Washington around crypto legislation, will provide momentum to the industry.
Last month, the Republican-led House Financial Services Committee passed legislation out of committee The goal is to provide clarity on gaps between the rules of the Commodity Futures Trading Commission (CFTC) and the SEC.
The bill gives the CFTC jurisdiction over digital goods and clarifies the SEC’s jurisdiction over digital assets offered as part of an investment contract. It also seeks to specify what companies must do with the SEC and requires the SEC to write new rules tailored to regulate cryptocurrencies.
“It’s encouraging to see that crypto is actually becoming a bipartisan issue,” Sonnenshein said.
Next year, he added, the industry could see another boost if there is a supply cut on the Bitcoin blockchain, which could increase the price of this cryptocurrency compared to other digital assets.
There are “some catalysts that could be really, really unique to continue to underscore the staying power of the asset class,” he said. This could mean “an environment around crypto that we’ve never seen before.”
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