The walls are caving in on Gary Gensler and his goon squad at the Securities and Exchange Commission (SEC)…
They’re losing their war on crypto in the courtrooms. And the markets can sense it.
Bitcoin and Ethereum are both up 5% since the beginning of the week. And it’s all due to a court ruling handed down on Tuesday. (More on that below.)
We’ve never been closer to a spot bitcoin exchange-traded fund (ETF)… The floodgates are about to open, sending crypto asset prices soaring higher.
As you’ll see in today essay, this week’s court ruling could be the deathblow to the SEC in its war against crypto.
Losing the Courtroom Battle
If you haven’t been following Grayscale’s case against the SEC, let me catch you up…
The Grayscale Bitcoin Trust (GBTC) is the largest bitcoin trust, with $17.4 billion in bitcoin under management.
Due to its structure, the share price of GBTC can differ from the underlying asset.
That’s because it doesn’t have the same creation/redemption mechanism that ETFs do to balance the share price with the underlying asset.
Not having this mechanism in place led GBTC to trade up to a 49% discount to its net asset value (NAV) last year. That’s a massive loss to GBTC holders on top of the already steep drop in crypto prices.
To solve this problem, Grayscale has been working to convert the trust to an ETF. That would allow it to create or redeem shares. This mechanism would prevent GBTC from trading at a premium or a discount to its NAV.
But last year, the SEC denied Grayscale’s application to convert its bitcoin trust into a spot bitcoin ETF. So Grayscale took it to court.
Meanwhile, the SEC has approved a bitcoin futures ETF for ProShares, VanEck, Global X, and other companies.
The SEC argued that a spot bitcoin ETF was more susceptible to market manipulation and lacked the oversight that a futures market had.
Just this week, a federal appeals court sided with Grayscale and ordered the SEC to vacate its rejection of Grayscale’s ETF filing.
In the order, the court’s panel of judges said the SEC was “arbitrary and capricious” for approving bitcoin futures ETFs but rejecting a spot bitcoin ETF.
To be clear, this doesn’t mean Grayscale has been approved to convert its trust into an ETF. It simply means the court decided that the SEC was wrong to reject the application based on its reasonings.
This is a major step in getting a spot bitcoin ETF to market.
The court sided with Grayscale because its spot bitcoin ETF would be “materially similar” to bitcoin futures ETFs. And it should have the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin.
So now the SEC needs to re-evaluate the Grayscale application and other ETF filings with the new ruling in mind.
Even former SEC Chairman Jay Clayton argued that a spot bitcoin ETF would be hard to deny at this point. That’s because the bitcoin spot market has a “similar efficacy to the futures market,” and the SEC has already approved a futures bitcoin ETF.
But this isn’t the only crypto-focused loss the SEC has recently taken.
In July, the SEC lost a lawsuit against Ripple in which it claimed the founders were selling unregistered securities with the sale of their XRP token.
The judge ruled that XRP is a security when sold to institutional investors but not when sold to the public on exchanges like Coinbase.
This was a major victory for all of crypto since the SEC has attempted to label all cryptocurrencies as securities, aside from bitcoin. This ruling pushes back against that idea.
Not only is Gary Gensler and the SEC losing in the courtrooms, but they’re becoming an enemy of Wall Street and politicians, too.
The SEC Has Its Back Against the Wall
Wall Street is spending tens of millions of dollars on building the infrastructure that will allow billions of dollars to invest in the space. You can read more about this in last week’s Palm Beach Daily.
In addition to this, Republicans on the House Financial Services Committee have blasted Gensler and the SEC for their approach to operators in the crypto space. And they say the SEC isn’t being transparent with how it wants companies in this space to operate.
Republican Rep. Warren Davidson of Ohio even called for the removal of Gensler for his abuse of power.
The political pressure is mounting… Wall Street is against them… It’s only a matter of time before Gensler and the SEC cave.
This week’s ruling is the perfect out for them to take after years of being on the wrong side.
The deadlines for six spot bitcoins ETFs are due by the end of this week – including ones from BlackRock, VanEck, WisdomTree, and Invesco. It’s likely the SEC will delay these rulings.
The SEC can drag its feet only so long. What this Grayscale victory tells me is that a spot bitcoin ETF in the United States is inevitable.
Longtime readers know Daily editor Teeka Tiwari has been pounding the table for years on a spot bitcoin ETF coming to the market.
Following Grayscale’s victory, Teeka put out a video update to Palm Beach Confidential subscribers. In it, he emphasized that this is a major victory for bitcoin and crypto assets. (Confidential subscribers can watch it right here.)
Here’s what Teeka said:
Bitcoin and digital assets are going to completely remake the face of money − of what is considered to be a true portable asset you can hold through time without it losing value. That’s never existed before in human history, and we have that with bitcoin.
But we’re early. We’re in the first 10−12 years of the creation of something that’s brand new. Think about the first 10−12 years of the first aircraft… or the first 10−12 years of the first automobile. We’re in a very different world where things move much faster.
So I want you to certainly celebrate this win. It is a win… But the war is far from over.
As crypto investors know, it’s never an easy ride to the top. There’s always volatility in this market.
Therefore, we need to take rational position sizing so we don’t get shaken out before the bull market really gets going.
Look, even if you don’t believe in crypto, just follow the money. That’s all you need to do to see where this asset class is headed.
Some of the biggest asset managers in the world are banging down the door of the SEC to approve a spot bitcoin ETF – including BlackRock, the world’s largest with $10 trillion under management.
If Wall Street has its way, which I believe it will, tens of millions of Americans will be able to buy and hold crypto just as easily as they can with stocks.
The Grayscale ruling from earlier this week shows we’re moving in that direction.
Today, there’s over $133 billion in 95 commodity ETFs that trade in the U.S. Of those, Wall Street is generating over $1 billion each year in custody fees.
It’s going to do the same for crypto.
If there’s one thing I’m sure about, it’s that Wall Street loves making asset management fees.
And the best assets you can own today to position yourself ahead of this trend are bitcoin and Ethereum.
If you’re looking for smaller cryptos with potentially higher upside than BTC and ETH, Teeka has found a project that’s enabling a major trend: the rollout of a central bank digital currency, or CBDC.
You see, the Federal Reserve recently launched a program that could lead to a mandatory recall on the U.S. dollar.
According to Teeka, this program could replace the dollar with a new digital version that will be radically different from what you have in your bank account right now.
He’s put together a briefing to explain what this new digital dollar regime means for you and your money.
Plus, he’ll also show you the one move you must make when your bank tells you it’s moving all your cash into this new digital dollar.
Analyst, Palm Beach Daily