Following this week’s “overwhelming victory” over the Securities and Exchange Commission, Grayscale Investments CEO Michael Sonnenshein predicted that the environment surrounding cryptocurrencies will soon reach a level we haven’t seen before.
The SEC’s denial of Grayscale’s application to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin exchange-traded fund was deemed “arbitrary and capricious” on Tuesday by a three-judge panel of the District of Columbia Court of Appeals in Washington.
A spot bitcoin ETF would provide investors access to the largest cryptocurrency without requiring them to acquire it, potentially broadening the adoption of digital assets.
Sonnenshein asserted in an interview with Yahoo Finance that the outcome was a resounding success for the whole investment and cryptocurrency communities, not just Grayscale and its investors.
The judgement may improve the chances for other asset managers to obtain authorization for their bitcoin-related products. The biggest money manager in the world, BlackRock (BLK), submitted paperwork to the SEC in June to establish a spot bitcoin ETF. The custodian for those bitcoin holdings would be Coinbase (COIN).
‘We need to exercise some patience’
Spot bitcoin offerings may be a sure thing, but that is not yet certain. The SEC is merely required under the federal appeals court’s decision to evaluate Grayscale’s application; it is not required to grant it. Additionally, the SEC can ask for a new hearing in the case until mid-October. It has stated that it is examining the judgement.
Sonnenshein from Grayscale indicated that they must exercise some patience.
The unpredictability may help to explain why a rally in cryptocurrency companies and digital assets faded on Wednesday after soaring higher on Tuesday in the hours following the disclosure of the Grayscale verdict.
By late Tuesday afternoon, Bitcoin (BTC-USD) temporarily reached $28,000, but by Wednesday, it had fallen to about $27,000. Still, it has increased by 64% from the year’s beginning.
On Wednesday, the shares of bitcoin mining companies Marathon Digital (MARA) and Riot Blockchain (RIOT) declined 3% and 2.4%, respectively, while Coinbase’s price dropped 1.2%. All three have significantly increased year to date and experienced double-digit percentage gains on Tuesday.
According to YCharts, the Grayscale bitcoin trust, which has the most bitcoin of any trust in the world, was down more than 4% on Wednesday and was trading at an 18% discount.
The discount would end right away if the trust were permitted to become an ETF.
The wider war
On a number of other fronts, the SEC is engaged in conflict with the bitcoin sector. The SEC has accused 19 different cryptocurrency actors of breaking securities laws since the year 2023, including exchanges like Coinbase and Binance that let investors trade virtual currencies. The Grayscale ruling has no bearing on those matters.
In many of these instances involving securities legislation, the SEC’s main argument is that because cryptocurrencies are securities, they need to be registered with the organization.
However, the courts have not yet made it clear how digital currencies should be handled, which casts doubt on how the government’s crackdown would actually pan out.
A digital token developed by Ripple Labs was only a security when it was offered to institutional investors, not when it was purchased by the general public, according to Analisa Torres, a US judge in the Southern District of New York. She made this statement on July 13.
In his case, in which the SEC claimed stablecoin issuer Terraform Labs offered unregistered securities, US judge Jed Rakoff disagreed with that particular point of view on July 31.
He came to the conclusion that the method of a cryptocurrency token’s sale, whether it be through an exchange or directly to institutional investors, has no bearing on whether a reasonable investor would anticipate the promise of gains. Do Kwon, the creator of Terraform Labs, is the target of an SEC investigation, according to Rakoff.
‘The durability of the asset class’
Sonnenshein expressed his optimism that the latest court rulings, along with some progress in Washington on legislation governing the crypto industry, will give the sector a boost.
A bill to clarify differences between the rules of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) was cleared out of committee last month by the Republican-led House Financial Services Committee.
The measure establishes the CFTC’s authority over digital commodities and defines the SEC’s authority over digital assets supplied as a component of an investment contract. It also tries to prescribe what businesses must do in order to register with the SEC and mandates that the SEC create new regulations specifically designed to regulate cryptocurrencies.
It is encouraging to see cryptocurrency truly turning into a nonpartisan topic, Sonnenshein remarked.
Next year, he continued, the business could get a lift from a supply cut on the bitcoin blockchain, which could improve the price of that cryptocurrency relative to other digital assets.
He claimed that there are some catalysts that have the potential to be extremely rare and further emphasize the asset class’s long-term viability. It might indicate an environment for cryptocurrencies that we haven’t seen before.
