Grayscale vs. SEC deadline: Commission faces a midnight Friday deadline to challenge August 29 loss

• Grayscale Investments sought for years to convert its GBTC, which has about $16.6 billion under management to an ETF.
• On August 29, the firm won lawsuit against the commission, with court determining that SEC’s denial was arbitrary and capricious.
• The SEC was given 45 days to appeal the ruling, in which case it would either go to the Supreme Court or an en banc panel review.

Grayscale Investments secured a resounding victory in its longstanding case against the US Securities and Exchange Commission (SEC) in late August. The lawsuit started in October after the firm approached the D.C. Circuit Court pushing to have its Bitcoin Trust (GBTC) converted to an Exchange-traded fund (ETF).

US SEC faces a midnight Friday deadline

US SEC has until midnight of Friday, October 13 to challenge its loss in court to Grayscale Investments. It comes after the August 29 win, when the court determined that SEC’s denial of Grayscale’s spot ETF proposal was “arbitrary and capricious.”

ORDERED and ADJUDGED that Grayscale’s petition for review be granted and the Commission’s order be vacated, in accordance with the opinion of the court filed herein this date.

This was considering the commission’s failure to explain why similar products are treated differently. With the victory, therefore the SEC was expected to review the rejection, with the potential to cause an approval of the first spot Bitcoin ETF in the US.

With this, the SEC was given 45 days to appeal the ruling. Beginning August 29, the deadline is today, October 13 at midnight. Two options present for the commission, first, going to the Supreme Court or an en banc panel review (En banc is a rehearing of the case by the full court, not just a 3-judge panel), and second, rejecting the application on other grounds for yet another time.

Will Gensler’s #SEC file for an en banc appeal vs @Grayscale #Bitcoin ETF case by the Oct 13th deadline? This poll pertains just to the filing, not whether the appeal is granted. (En banc is a rehearing of the case by the full court, not just a 3-judge panel).

— Timothy Peterson, CFA CAIA (@nsquaredcrypto) September 29, 2023

Nevertheless, if the SEC does not appeal, it is nearly equivalent to an approval. Further, it could serve as a smoke signal from the SEC on whether a spot Bitcoin ETF could soon come to market.

Earlier, Berenberg analysts indicated that the SEC could use alternative arguments to reject Grayscale spot Bitcoin ETF. According to the German Investment Bank’s analysts, the involvement of Coinbase in the spot Bitcoin ETF campaign could add to the regulator’s concerns while strengthening its arguments for opposition.

This comes as Coinbase is engaged in a lawsuit levied by the US SEC, battling charges of operating as an unregistered securities exchange.

Bitcoin Spot ETF could create a lot of sell pressure

Meanwhile, a YouTuber and analyst has anticipated a lot of sell pressure if the Bitcoin Spot ETF passes, with the current 17% Grayscale GBTC discount. The trust currently records around $16.6 billion in assets under management (AUM). However, t trades like a closed-end fund such that the price can change significantly from the value of its underlying assets.

With Grayscale currently holding around 636896 BTC (approximately $17.082 billion at current rates), it typically has more Bitcoin than its actual market value ($16.6 billion), hence the discount.

The Bitcoin Spot ETF could create a lot of sell pressure.

Here is why:

If you’re looking to speculate on the impending Bitcoin Spot ETF approval, a logical move would be to invest in $GBTC. Currently, you can acquire Bitcoin at a 17% discount.

The fund has more Bitcoin than… pic.twitter.com/FgQ3T2ABuK

— Crypto Rover (@rovercrc) October 12, 2023

If Grayscale’s ETF is approved, there is potential to offload it for a profit margin.

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