A recent turn of events left the U.S. Securities and Exchange Commission (SEC) red-faced, a U.S. appeals court slammed the regulatory body for its “arbitrary and capricious” decision-making. The crux of the dispute was the SEC’s denial to convert the Grayscale Bitcoin Trust into the first U.S. spot ETF while permitting several derivatives-based ETFs.The court’s judgment contained sharp criticisms, calling out the SEC for failing to meet the “standard for reasoned decision-making.” It’s a situation that has left crypto enthusiasts and Wall Street analysts asking: Why did derivative ETFs get the nod, but not a spot ETF?Alistair Milne, a well-known investor and crypto influencer, believes that SEC Chairman Gary Gensler may have a plan to regain the agency’s bruised reputation. During a recent Senate appearance, Gensler stated that the SEC is reviewing both the Appeals Court judgment and other Bitcoin spot ETF applications, ostensibly treating all applications as equals.How Gary Gensler and the SEC Will Try to Save FaceA recent US appeals court was not kind to the SEC. Three Judges signed a judgement stating that the SEC had been “arbitrary and capricious” in its denial of converting the Grayscale Bitcoin trust into the first US spot ETF while…— Alistair Milne (@alistairmilne) September 21, 2023 This is more than a mere coincidence. Large asset managers have been rushing to file for ETFs since Grayscale initiated legal action against the SEC. Milne says this could be the golden window for the SEC to restore its credibility.
SEC likely to Approve spot ETFs?
According to Milne, the SEC will likely approve spot ETFs from some of the most trusted ETF operators globally, thereby conveniently declaring the crypto market has ‘matured.’ This will enable the SEC to assert that the entry of significant players like Blackrock into the market will bolster trading volume in the U.S., thereby augmenting oversight and reducing the risk of market manipulation.It’s an elegant solution that saves face and allows the SEC to avoid having to devise new excuses for denying spot ETFs or retracting approvals for derivative-based ETFs. Such actions would inevitably lead to more lawsuits and further public disgrace.
Timing is Everything
As Wall Street prepares to embrace Bitcoin fully, the SEC seems to be realigning its strategy. It’s worth noting that Blackrock has had only one out of its 576 ETF applications denied.With the SEC having 45 days to review its decision on the Grayscale Bitcoin Trust, Milne speculates that several U.S. spot Bitcoin ETFs could be approved as soon as mid-October. This, in turn, could catalyze a new bull market, further amplified by the Bitcoin halving event slated for April 2024.