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

article-image

pathdoc/Shutterstock modified by Blockworks

share

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.

Loading Tweet..

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.”


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Top Icon.png

Research

Osmosis thrived in H2 2023 on the back of increased DeFi activity deriving from recently launched Cosmos-related projects and better market conditions. With new value accrual mechanisms for the native token, Osmosis is well-positioned to continue its strong performance in 2024.

/

article-image

Do Kwon may miss the start of the March 25 trial in the SEC’s case against the former executive and Terraform Labs

article-image

Riot Platforms bought 31,500 more mining machines while CleanSpark has begun operating in Mississippi

article-image

Dencun was activated on all testnets, a blog post Tuesday said

article-image

Hut 8 also announced it broke ground on a Texas mining site

article-image

Uniswap aims to become a “complete platform for swapping” following its latest product releases

article-image

Continued demand for bitcoin ETFs coupled with greater demand for bitcoin from exchanges is contributing to price moves, analysts say