JPMorgan analyst Nikolaos Panigirtzoglou explained in a note last week that the U.S. Securities and Exchange Commission (SEC) may be forced to approve several spot bitcoin exchange-traded funds (ETFs) after a court ruled in favor of Grayscale Investments regarding the crypto asset manager’s proposal to convert its bitcoin trust into a spot bitcoin ETF.
“The court ruling on the Grayscale case against the SEC has boosted crypto markets optimism,” the JPMorgan analyst wrote, elaborating:
With this decision following on from the recent SEC vs. Ripple court decision, it has in turn raised optimism that the SEC crackdown against crypto companies, that has been very intense since the beginning of the year, would lessen going forward as the SEC faces legal challenges.
“The most important element of the Grayscale vs. SEC court ruling was that the denial by SEC (of Grayscale’s proposal to convert its closed-end bitcoin trust to spot bitcoin ETF) was ‘arbitrary and capricious because the Commission failed to explain its different treatment of similar products’ i.e. futures-based bitcoin ETFs,” Panigirtzoglou detailed.
“Effectively the court argued that fraud and manipulation in the bitcoin spot market pose a similar risk to both futures and spot products because the spot bitcoin market and the CME bitcoin futures market are tightly correlated. Therefore the court ruled that there was no justification for the SEC to be allowing bitcoin futures-based ETFs but deny spot bitcoin ETFs,” the analyst described.
Panigirtzoglou stressed: “This is highly significant because it implies that for the SEC to defend its denial of Grayscale’s proposal to convert its closed-end bitcoin trust to spot bitcoin ETF, it would have to retroactively withdraw its previous approval of futures-based bitcoin ETFs.”
He stated that this “looks unlikely in our mind” because “Such a retroactive withdrawal would be very disruptive and embarrassing for the SEC.” The JPMorgan analyst added:
Instead it looks more likely that the SEC would be forced to approve the spot bitcoin ETF applications that are still pending from several asset managers including that from Grayscale.
“The recent postponement to October ’23 of the SEC decision on pending spot bitcoin ETF applications, likely points to approval of multiple spot bitcoin ETF applications at once rather than granting a first mover advantage to any single applicant,” he further said. “That could be beneficial for investors as it would allow for more competition in terms of ETF fees. Grayscale will likely face even bigger pressure to lower fees if its trust gets approval to be converted to the largest bitcoin spot ETF in the world.”