Ben Strack

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.&nbsp;&nbsp;&nbsp;



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’ <a href="http://blockworks.co/news/grayscale-sec-decision-bitcoin-etf">favorable ruling for Grayscale Investments</a>. 



After the SEC denied the conversion of the Grayscale Bitcoin Trust (<a href="https://blockworks.co/tag/gbtc">GBTC</a>) to an ETF last year, a three-judge panel unanimously decided to vacate that decision Tuesday — <a href="https://blockworks.co/news/judges-grayscale-sec-ruling">calling it “arbitrary and capricious.”</a> Though the ruling does not compel the securities regulator to approve the conversion, it essentially forces the SEC to reconsider the application.&nbsp;



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



Read more: <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf">What Grayscale’s win against the SEC actually means</a>



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.&nbsp;&nbsp;



“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.”&nbsp;&nbsp;&nbsp;



US Rep. Patrick McHenry, R-N.C., wrote in a Tuesday X, formerly Twitter, post that SEC chair <a href="https://blockworks.co/news/mchenry-support-grayscale-sec">Gary Gensler’s “crusade against the digital asset ecosystem is falling apart</a> under scrutiny from the courts.” US Rep. Warren Davidson, R-Ohio, <a href="https://blockworks.co/news/republicans-oust-gensler-bill">reiterated his call to fire Gensler</a>.



But there is also political pressure for the SEC to continue blocking a <a href="https://blockworks.co/tag/bitcoin-etf">bitcoin ETF</a>, said Valkyrie chief investment officer Steven McClurg. Valkyrie is among the handful of fund groups with <a href="https://blockworks.co/news/sec-spot-bitcoin-etf-blackrock">spot bitcoin ETF proposals in front of the SEC</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">There is more political pressure to NOT approve an ETF. Namely, the ruling administration with Elizabeth Warren leading the anti-crypto army. <a href="https://t.co/ueHILcQZAL">https://t.co/ueHILcQZAL</a>&mdash; Steven McClurg (@stevenmcclurg) <a href="https://twitter.com/stevenmcclurg/status/1696848795407966444?ref_src=twsrc%5Etfw">August 30, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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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.&nbsp;



Warren — <a href="https://blockworks.co/news/elizabeth-warren-crypto-web3">an outspoken critic of the crypto space</a> — 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 <a href="https://blockworks.co/tag/sec">SEC</a> to approve spot bitcoin ETF filings by the end of the year.&nbsp;



Aside from pressure from politicians, there will likely be additional “political impetus” to approve spot bitcoin ETFs considering <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">TradFi giants like BlackRock are involved</a>, CoinShares product head Townsend Landing said in a Wednesday <a href="https://blog.coinshares.com/the-sec-in-an-apa-maze-of-its-own-making-4c29391ce333">blog</a> post.&nbsp;



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.&nbsp;&nbsp;



“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.&nbsp;



The SEC has come under fire by some <a href="https://blockworks.co/news/regulation-by-enforcement-unsustainable">for its regulation-by-enforcement tactics</a>, including <a href="https://blockworks.co/news/sec-sues-coinbase">suing Coinbase for allegedly operating an unregistered exchange</a> — charges the crypto company has denied.&nbsp;&nbsp;



“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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Is another SEC bitcoin ETF denial politically untenable?

Casey Wagner

<div id="highlights-block_62475be27337f" class="highlights">
 <ul>
 <li>Both senators agree crypto regulation is needed, but they differ on how it should be executed</li>
 <li>Warren said buying bitcoin is like “buying air” during an interview Thursday night</li>
 </ul>
 
</div>



Two of the highest-profile US senators, while both agreeing on the need for more defined cryptocurrency regulation, are divided on the value of digital assets and their place in consumers&#8217; portfolios.



Senators Elizabeth Warren, D-Mass., and Cynthia Lummis, R-Wyo., particularly clashed on the fundamental value of bitcoin Thursday on Chuck Todd’s “<a href="https://www.nbcnews.com/meet-the-press/video/sen-lummis-bitcoin-is-a-commodity-136674885755" target="_blank" rel="noreferrer noopener">Meet the Press</a>.”



“[When I buy bitcoin] am I buying air?” Warren said during the interview. “It&#8217;s a bet on whether this thing, this ephemeral token, will become more valuable or less valuable.”



The concept, however, is not so different from the US stock market, NBC reporter Jo Ling Kent said during the program.



Lummis, on the other hand, sees crypto morphing into a viable currency down the line.



“I believe it will be currency someday, but at this point in its existence, it&#8217;s a commodity,” Lummis said. “At some point, though, it will become a means of payment, which it is not right now, but it&#8217;s going to happen really fast.”



There is a portion of the crypto industry that welcomes regulation, according to Warren, but it bears keeping in mind that with new rules come new responsibilities.



“You have to do certain things, like banks do, like know your customers, so you know you’re not doing drug money laundering, or you’re not helping tax cheats, or you’re not helping a country like Russia evade financial sanctions,” Warren said.



The more libertarian wings of crypto, however, are lobbying for no regulation whatsoever.&nbsp;



“There’s another part of the crypto world that says, ‘No, we like it that nobody can tell who came on the system and what they’re using the system for,’” she said. “They would describe it as getting away from the prying eyes of the government, but another way to say that is, ‘Yeah, opening up the door to the money launderers, the human traffickers, the tax cheats, the countries trying to evade sanctions.’”



There should be a balance when it comes to regulation, Lummis, who recently introduced a new bi-partisan cryptocurrency bill with Sen. Kirsten Gillibrand, D-N.Y., countered.&nbsp;



“I&#8217;m very confident that bitcoin will stand the test of time,” Lummis said. “I&#8217;m not confident that every other digital asset that&#8217;s out there has the same qualities of permanence and complete decentralization. There&#8217;s some fraud that&#8217;s going to occur, which is why I think it&#8217;s so important for the United States to create a regulatory framework that allows for innovation, but still creates rules of the road that protect individual privacy.”&nbsp;



Regardless of lawmakers’ views on the largest digital currency, industry experts insist the asset class is too evolved now to fall by the wayside.



“It’s way too late to try to ban bitcoin,” said Cailtin Long, CEO of Avanti Group, a Wyoming-based bank leading the charge for digital asset adoption in the state. “Everyone who says that bitcoin should be banned is in fact revealing that they don&#8217;t understand what bitcoin actually is.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Senator Warren