Grayscale Investments CEO Michael Sonnenschein predicted the stage is now set for "an environment around cryptocurrencies like we've never seen before" after what he called a "shocking victory" this week against the Securities and Exchange Commission.
A three-judge panel of the Court of Appeals for the District of Columbia Circuit in Washington said Tuesday that the Securities and Exchange Commission (SEC) acted "arbitrarily and capriciously" when it denied Grayscale's request to return to Grayscale Bitcoin Trust ( GBTC) to bitcoin. publicly traded money fund.
The Spot Bitcoin ETF will give investors access to the world's largest cryptocurrency without owning it, potentially expanding mainstream adoption of the digital asset.
Sonnenschein told Yahoo Finance that the decision was "a huge win not only for Grayscale and our investors, but for investors and the cryptocurrency community as a whole."
The move could increase the chances of other asset managers getting approval for their Bitcoin products. The world's largest investment manager, BlackRock (BLK), filed with the SEC in June to launch a bitcoin ETF. Coinbase (COIN) will be the custodian of these Bitcoin assets.
"You have to be patient"
But it is still unclear whether spot Bitcoin transactions are guaranteed. The federal appeals court ruling only requires the SEC to consider Grayscale's application, not approve it. The SEC has until mid-October to request a complaint. He said that he is reviewing this decision.
"We have to be a little more patient," said Grayscale's Sonnenschein.
The uncertainty may help explain why the rally in crypto and digital asset firms stalled on Wednesday after Tuesday's sharp rise in the hours after Grayscale's decision was announced.
Bitcoin ( BTC-USD ) briefly hit $28,000 on Tuesday night, only to fall to nearly $27,000 on Wednesday, still up 64% from a year ago.
Shares of Coinbase fell 1.2% on Wednesday, while shares of Bitcoin miners Marathon Digital ( MARA ) and Riot Blockchain ( RIOT ) fell 3% and 2.4%, respectively. All three posted double-digit gains on Tuesday and are up sharply year-over-year.
Grayscale Bitcoin Trust, the world's largest Bitcoin trust holder, fell more than 4% on Wednesday and traded at an 18% discount, according to YCharts.
If the trust can be converted into an ETF, the haircut will change immediately.
a wider war
The SEC is fighting the cryptocurrency industry on several other fronts. Since the beginning of 2023, the SEC has charged 19 different players in the cryptocurrency industry with violating securities laws, including exchanges like Coinbase and Binance that allow investors to trade digital currencies. Grayscale resolution does not affect these cases.
The SEC's main argument in these securities law cases is that cryptocurrencies are securities and therefore must be registered with the agency.
But so far, courts have been unclear about how to treat digital currencies, creating uncertainty about how the government crackdown might end up.
US District Judge Annalisa Torres of the Southern District of New York said on July 13 that the digital token issued by Ripple Labs is a security only when sold to institutional investors, not when bought by the general public.
Then, on July 31, US Judge Jed Rakoff dissented from that separate opinion in a case in which the SEC alleged that stablecoin issuer Terraform Labs was selling unregistered securities.
It ruled that the way crypto tokens are sold, whether through an exchange or directly to institutional investors, does not determine whether a reasonable investor would expect a promise of profit. Rakoff has ruled that the SEC's lawsuit against Terraform Labs founder Do Kwon can proceed.
"Stability of asset classes"
Sonnenschein said he is encouraged that recent legal rulings, as well as some moves in Washington to regulate the cryptocurrency world, will give the industry a boost.
Last month, the Republican-led House Financial Services Committee approved legislation to clarify inconsistencies between the Commodity Futures Trading Commission (CFTC) and SEC rules.
The bill gives the CFTC jurisdiction over digital assets and clarifies the SEC's jurisdiction over digital assets offered under investment contracts. It also seeks to clarify what companies must do to register with the SEC and requires the SEC to write new rules tailored to govern cryptocurrencies.
"It's encouraging to see cryptocurrencies becoming a nonpartisan issue," Sonnenschein said.
Next year, he added, the sector could get a boost from a shrinking supply in the bitcoin blockchain, which could boost the cryptocurrency's price relative to other digital assets.
There are "some catalysts that could be very unique, continuing to highlight the resilience of the asset class," he said. It could mean "an environment around cryptocurrencies that we've never seen before."
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