Is another SEC bitcoin ETF denial politically untenable?

Aside from lawmaker views on spot bitcoin ETFs, pressure from TradFi players poised for such a product could weigh on SEC, according to CoinShares exec

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While some say political pressure for the US Securities and Exchange Commission to approve a spot bitcoin ETF is mounting after the regulator’s Tuesday loss in court, such insistence exists on the opposite side too.

Still, the SEC has the opportunity to concede its previous stance as part of “a diplomatic way to retreat from a losing position,” one industry executive said.   

Bloomberg Intelligence analysts upped their odds of a spot bitcoin ETF approval by the end of the year from 65% to 75% following the DC Circuit Court of Appeals’ favorable ruling for Grayscale Investments

After the SEC denied the conversion of the Grayscale Bitcoin Trust (GBTC) to an ETF last year, a three-judge panel unanimously decided to vacate that decision Tuesday — calling it “arbitrary and capricious.” Though the ruling does not compel the securities regulator to approve the conversion, it essentially forces the SEC to reconsider the application. 

An SEC spokesperson told Blockworks Tuesday the regulator was “reviewing the court’s decision to determine next steps.”

Read more: What Grayscale’s win against the SEC actually means

Eric Balchunas, senior ETF analyst Bloomberg Intelligence, said during a Wednesday webinar that though he expected Grayscale to win the case, the ruling offers “a thorough and complete rebuke of the SEC’s reasons for denial.”

“It’s sort of like predicting the Patriots to win the Super Bowl, but then they win 35-3,” he added. “It’s like, wow, I didn’t think they’d win by that much.”

The headlines of Grayscale’s win bled into mainstream media, Balchunas pointed out — including the New York Times, ABC News and the Wall Street Journal.  

“A lot of this is the stuff that people on Capitol Hill read, so this is setting a narrative that the SEC is losing,” Balchunas said. “So you take the legal loss and the PR loss and we think this is going to create what we consider to be political untenableness of denial.”   

US Rep. Patrick McHenry, R-N.C., wrote in a Tuesday X, formerly Twitter, post that SEC chair Gary Gensler’s “crusade against the digital asset ecosystem is falling apart under scrutiny from the courts.” US Rep. Warren Davidson, R-Ohio, reiterated his call to fire Gensler.

But there is also political pressure for the SEC to continue blocking a bitcoin ETF, said Valkyrie chief investment officer Steven McClurg. Valkyrie is among the handful of fund groups with spot bitcoin ETF proposals in front of the SEC.

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The crypto industry could see continued negative pressure come from Sens. Elizabeth Warren, D-Mass. and Bob Menendez, D. N.J., in particular, McClurg noted. 

Warren — an outspoken critic of the crypto space — is a member of the Senate Banking Subcommittee on Securities, Insurance and Investment, which oversees the activities of the SEC and public markets. Menendez serves as the committee chair.

“We may see Sen. Warren and Sen. [Menendez] issue statements about their concern on this news, but we don’t see it slowing down the process of these ETFs getting approved ultimately,” McClurg told Blockworks in an email.

The Valkyrie CIO added that he expects the SEC to approve spot bitcoin ETF filings by the end of the year. 

Aside from pressure from politicians, there will likely be additional “political impetus” to approve spot bitcoin ETFs considering TradFi giants like BlackRock are involved, CoinShares product head Townsend Landing said in a Wednesday blog post. 

BlackRock manages more than $9 trillion in assets and has only ever had one product proposal denied by the SEC in nearly 600 attempts, according to Bloomberg Intelligence data.  

“Framing their decision as a commitment to the ‘rule of law,’ despite disagreement, offers a diplomatic way to retreat from a losing position,” Lansing said. 

The SEC has come under fire by some for its regulation-by-enforcement tactics, including suing Coinbase for allegedly operating an unregistered exchange — charges the crypto company has denied.  

“This is not just about Grayscale; the entire traditional financial sector is poised for a spot bitcoin ETF,” Lansing added in the post. “With other key players proposing their own ETFs, SEC chair Gensler has the opportunity to reshape the agency’s narrative.”


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