Original author: Jaleel, Kaori, Joyce, Luccy, BlockBeats

Original editor: Jaleel, BlockBeats

In the recent period, some narratives in the encryption circle have gradually weakened. Bitcoin has repeatedly fallen below 26,000. BlackRocks June 15 Bitcoin ETF filing.

Yet just tonight, Grayscale won a lawsuit overturning the SECs decision to block the Grayscale ETF. The broader market rose by 6.48% in a short period of time. Bitcoin briefly broke through 28,000 US dollars, Ethereum briefly broke through 1,700 US dollars, and the Ethereum network Gas fee also broke through 100 gwei for a long time. At the same time, STX rose by more than 18% in a short period of time, CYBER rose by 22.81%, and Coinbases stock price rose by 14.10%, the largest single-day increase since July 13. Many air forces have been exposed, and in the past 1 hour, the entire network has blown up more than 80 million US dollars.

A three-judge appeals panel in Washington overturned the SECs decision to block the Grayscale ETF, according to court documents. The rejection of Grayscales proposal is arbitrary and capricious because the SEC has failed to account for the different treatment of similar products, the court said.

Grayscale stated that this ruling is a milestone progress for American investors and the Bitcoin ecosystem. The reason for this milestone is that if the Bitcoin spot ETF is launched, the cryptocurrency will usher in a historic moment. At that time, GBTC is expected to be converted into ETF smoothly, and its negative premium will no longer exist.

The various reasons why the SEC rejected Grayscale in the past three years

As the first batch of traditional financial institutions to enter the encryption market, Grayscale plans to apply to convert its BTC trust into a spot exchange-traded fund (ETF) from October 2020. Grayscale’s Bitcoin Trust (GBTC) management Asset growth has outperformed most U.S.-registered ETFs.

During this three-year period, the SEC exhausted various reasons for rejection. On November 12, 2021, the SEC rejected the application on the grounds that it did not meet the requirements of the Securities Exchange Act of 1934 (Exchange Act). On June 30, 2022, the SEC again rejected Grayscales application to convert its GBTC into a Bitcoin spot ETF. The filing failed to answer the SECs questions about preventing fraud and manipulative practices and other concerns, the SEC said.

It was also at this time that Grayscale decided to formally file a lawsuit against the SEC. Compared with todays SECs troubles in finding the currency circle, Huidu took a slant and chose to sue the SEC very strongly. That day, Grayscale CEO Michael Sonnenshein said on social media: “We have filed a lawsuit against the SEC.”

This year, Michael Sonnenshein once again expressed his determination and toughness to fight the SEC to the end. He expects that the lawsuit against the SECs rejection of the Bitcoin spot ETF may be ruled in the third quarter of this year, and he is using all resources to fight the US SEC. If the U.S. regulatory authorities are still unwilling to recognize the legal securities status of Bitcoin ETF, Grayscale will not hesitate to take the lawsuit to the Supreme Court if necessary.

In order to realize the Bitcoin spot ETF, Grayscale took a clever move at this time and began to prepare for the issuance plan of the ETH futures ETF. After receiving the SECs regulatory warning, Grayscale wrote to the Federal Court of Appeals to protest the SECs differential treatment of Bitcoin ETF products. On July 12, according to an official announcement, Grayscale’s lawyers have submitted a letter to the Court of Appeals for the Federal Circuit of the District of Columbia, protesting that while the SEC approved leveraged Bitcoin futures ETFs, it continued to refuse to approve spot Bitcoin ETFs such as GBTC. Grayscale argued that the SEC’s approval of the leveraged Bitcoin futures ETF provides more support for its legal argument that the SEC is acting in an arbitrary manner. Grayscale points out that while allowing trading of leveraged futures products, there is no sufficient reason to continue to deny approval of spot products.

Grayscale also submitted a statement to the SEC stating that the SEC should approve all Bitcoin spot ETF applications at the same time to provide equal treatment to all applicants. Proposals to only approve listings including Ark 21 Shares, Invesco Galaxy, iShares (BlackRock), Valkyrie, VanEck, WisdomTree and Wise Origin (Fidelity) would reflect positive but sudden and significant changes that Such changes involve the Commissions application of relevant statutory standards and would therefore give these proposals an unfair discriminatory and prejudicial first-mover advantage.

The SEC’s past rejections of cryptocurrency spot ETFs have expressed concerns that the spot market does not yet have sufficient liquidity or trading volume. These cryptocurrencies are traded on unregulated exchanges, making them difficult to monitor, and market manipulation is a long-standing problem in the spot market. Although the SEC has approved cryptocurrency futures ETFs, these ETFs are all on platforms supervised by the US financial regulatory authorities.

Returning to this successful lawsuit, on October 12 last year, Grayscale filed an opening brief in response to the SEC’s rejection of its application for a spot Bitcoin exchange-traded fund. Grayscale Chief Legal Officer Craig Salm said that spot ETFs and futures ETFs make no difference in the context of Bitcoin because CME Bitcoin futures are inherently priced lower than the spot Bitcoin market. U.S. Securities said in the briefing The Exchange Commission failed to demonstrate why there were significantly different approaches to approval of Bitcoin futures ETPs and spot Bitcoin ETPs, thereby violating the most basic requirements of the U.S. Administrative Procedure Act.

Why is this a huge win?

Grayscale has always maintained an optimistic attitude during this lawsuit, and recently stated that it is recruiting senior consultants for the ETF team, who will assist Grayscale’s ETF team in all stages of the product life cycle, including product strategy, conception, launch and launch. post support.

A few weeks before the outcome of the lawsuit, Nathan Geraci, president of consulting firm The ETF Store, said that once the court results in Grayscales favor, the key to the approval of the spot Bitcoin ETF will be how the SEC views Coinbases monitoring sharing proposed by the ETF listing trading platform. The agreement, assuming there are no issues with either, will undoubtedly be a catalyst for the approval of a spot Bitcoin ETF.

Matthew Sigel, head of digital asset research at VanEck Fund Group, also expressed his views on the incident: SECs policy on crypto ETFs has always been arbitrary. Now it is completely incoherent.

The outcome of this lawsuit also shows the courts attitude towards the SEC. A three-judge appeals panel in Washington overturned the SECs decision to block the Grayscale ETF, according to court documents. The rejection of Grayscales proposal is arbitrary and capricious because the SEC has failed to account for the different treatment of similar products, the court said.

Not only the courts, but also Congresss attitude towards the SEC seems to be unfriendly in recent times. On June 12, U.S. Representative Warren Davidson introduced the SEC Stabilization Act to the House of Representatives. One of the main provisions of the bill is to reorganize the US SEC and fire SEC Chairman Gary Gensler.

The proposal is supported by fellow Congressman Tom Emmer. “American investors and industry deserve clear and consistent oversight, not political gamesmanship. The SEC Stabilization Act will bring common-sense reforms that ensure the SEC’s top priority is protecting the investors they are responsible for protecting, and Not to cater to the whims of his reckless chairman, Tom Emmer said in a press release.

The capriciousness of the SEC is a consensus among the U.S. Legislature and the nation’s highest judicial body. Returning to the outcome of the lawsuit, although Grayscales victory in the lawsuit does not mean that GBTC can be freely converted into ETFs, it takes the conversion one step further.

Adam Cochran, Partner at Cinneamhain Ventures (@adamscochran) opined: The full decision is a butchery of the SECs arguments and requires a full review of Grayscales filing. From now on, the SECs options are: delay the decision and come up with new spurious reasons; concede and approve; request an appeal of the case .”

But given the reasons for the courts ruling and the fact that they repeatedly pointed to the SECs failure to support any of their arguments, a full appeal would be a terrible decision that would probably just piss off the court. So this is a huge win. Adam Cochran on social media wrote.

Although Grayscales victory in the lawsuit does not mean that GBTC will be freely converted into an ETF immediately, it does mean that the listing of the Bitcoin spot ETF is closer.

The ARK 21 Shares BTC ETF, a partnership between Ark Investment Management and 21 Shares, has been seeking approval since 2021. Since the beginning of this year, eight large financial institutions, including BlackRock, have submitted Bitcoin ETF applications to the US SEC. Bitwises application for a Bitcoin ETF comes just 1 day apart from BlackRocks, and despite being previously rejected by the SEC due to fraud and manipulation concerns, Bitwise remains steadfast. Then, not to be outdone, WisdomTree resubmitted its application for the WisdomTree BTC Trust. Although both applications were unsuccessful, they still hope to let investors understand the price trend of BTC. Finally, Fidelity Investments has joined the BTC ETF bandwagon.

Data shows that as of August 20, at least 16 Ethereum-related ETF applications are waiting for regulatory approval, and these companies have not withdrawn their applications. The SEC has a total of 240 days to make a decision on the application after starting the review, and the first deadline for the next batch of ETF applications is September 2, and Bitcoin ETFs will usher in intensive approvals. The SEC is expected to respond to the Bitcoin ETF application documents submitted by Bitwise, BlackRock, VanEck, WisdomTree and Invesco on September 2. Bitwise’s filing will be considered until Friday and the others the next day, so the SEC could weigh in before the weekend. At the same time, application responses were filed for Valkyrie and Globle X on September 4 and October 10 respectively.

Issues such as market manipulation, liquidity, and the inherent volatility of assets in the crypto industry are among the reasons regulators such as the SEC have been cautious. For this reason, the SEC rejected the applications of Ark Investment Management and 21 Shares, but Arks CEO Cathie Wood guessed that the SEC will approve multiple ETFs at the same time, and success depends mainly on marketing capabilities and effective communication.

Obviously, once the Bitcoin spot ETF is officially listed in the United States, it will become a milestone event in the global blockchain field, because it means that the U.S. regulators have legally recognized the legal status of Bitcoin as a financial product, and Bitcoin will gain unprecedented access. influence.

Concentrated benefits, the biggest beneficiary may be the DCG empire behind GBTC

Barry Silbert founded DCG in 2015 and subsequently created the DCG Empire by investing in hundreds of projects and companies. The most important company in DCGs portfolio is Grayscale Investments, and GBTC currently holds approximately 623,000 Bitcoins.

Due to the complexity of compliance and transactions, it is difficult for institutional investors to directly hold BTC. For individual investors, there is a certain learning threshold for cryptocurrency transactions and storage. GBTC, the Bitcoin Trust fund managed by Grayscale Investments, has largely helped solve this problem. Therefore, many institutions participate in the movement of premium arbitrage with the help of GBTCs product structure.

BlockBeats Note: When shares of the Grayscale Bitcoin Trust change hands above the underlying Bitcoin price, GBTC trades at a premium. Conversely, if GBTC shares are trading below NAV, it is considered to be trading at a discount (negative premium).

GBTC tracks the price of Bitcoin but is not completely consistent, and its premium rate has been one of the important indicators in the cryptocurrency market. Before the crypto market completely turned bearish, the negative premium trend of GBTC seemed irreversible. In order to change the trust into a spot bitcoin ETF and correct the discount of GBTC, Grayscale has been promoting the conversion of GBTC into a bitcoin spot ETF, but the three applications were ruthlessly rejected by the SEC.

During the peak of the 2020-2021 bull market, the value of GBTC shares exceeded the value of the underlying Bitcoin. Many people believe that it was Grayscale’s GBTC that drove the emergence of the last bull market cycle.

However, since the end of February 2021, GBTC has experienced a negative premium. With the thunderstorms of CeFi institutions such as Celsius, Three Arrows, and FTX, the arbitrage opportunities for handling and GBTC have gradually disappeared, and GBTC has also experienced an unprecedented big discount. After entering the bear market in 2022, the ratio continued to expand, and the continuous negative premium of GBTC was once considered to have dragged down the development of the DGC empire.

However, as the litigation process between Grayscale and the SEC gradually became clear, in March this year, Eric Balchunas, a senior ETF analyst at Bloomberg, and Elliott Z Stein, a senior legal analyst at Bloomberg, stated that the probability of Grayscale winning the lawsuit increased to 70%. Many well-known investors are optimistic about the follow-up development of GBTC. Cathie Wood has repeatedly praised the future growth of GBTC and looks forward to returning to a positive premium. ARK investment under her management is the largest holder of GBTC. As more and more investment institutions in the market this year are also optimistic about the winning rate of Grayscale, the negative premium of GBTC has gradually stabilized.

Since mid-June, as one of the largest asset management groups in the world, BlackRock has submitted a document application for a spot bitcoin ETF to the US SEC through its subsidiary iShares, which has attracted great attention from the market. Traditional financial giants also followed BlackRocks application for ETFs, and the daily trading volume of GBTC continued to rise and soar, and broke through 183 million US dollars on July 13, a new high for the year.

Grayscale CEO Michael Sonnenshein said at the CoinDesk 2023 Consensus Conference in April that by the end of the third quarter of this year, it may be known whether the company can convert GBTC worth $17.5 billion into a spot Bitcoin ETF. As the final judgment is getting closer and closer, GBTC has already had a rising sentiment. Now that Grayscale has won the lawsuit with the SEC, it is like adding another bundle of firewood to the fire. After Grayscale won the lawsuit with the SEC, GBTC quickly responded positively to its negative premium rate.

According to Coinglass latestdataIt shows that the current total holdings of Grayscale Fund is about 16.3 billion US dollars, and the negative premium of GBTC has narrowed from 25% yesterday to 17%, and the negative premium is still narrowing, compared with the highest negative premium in December 2022 Rate (the negative premium amounted to 48.62% at the time) recovered about 31.62%.

What’s even more interesting is that just this morning when the judgment was announced, DCG reached a preliminary agreement with Genesis’ creditors. The agreement includes unsecured creditors being able to receive recoveries equivalent to 70% to 90% of the dollar value and 65% to 90% in kind depending on the denomination of the digital assets. Pending court approval, DCG expects to inject more than $1 billion in new debt financing into Genesis.

After the collapse of cryptocurrency hedge funds Three Arrows Capital and FTX last year, DCG subsidiary Genesis suffered a severe financial blow. In January this year, Genesis applied to the New York Federal Bankruptcy Court for Chapter 11 bankruptcy protection.

DCG now aims to clear existing debt, which includes about $630 million in unsecured loans due in May 2023 and $1.1 billion in promissory notes due in 2032. Its repayment plan is divided into two tranches: one for $328 million due in two years and another for $830 million due in seven years, according to the filing. In addition, DCG has committed to four installments totaling $275 million to cover the loan due in May 2023.

Judging from the fact that Grayscale won the lawsuit against the SEC on the same day, DCG’s move was very meaningful. What is certain is that as GBTC is increasingly likely to be converted into a Bitcoin spot ETF, the DCG empire behind GBTC is also facing new hope.