In a recent court case against Grayscale Investments, the SEC was dealt a blow as a federal court ruled that the agency must review its rejection of Grayscale’s proposal to convert its bitcoin trust into an ETF. The court found the SEC’s rejection to be “arbitrary and capricious” as it failed to provide a clear explanation for treating futures-based Bitcoin ETFs and spot-based Bitcoin ETFs differently. JP Morgan analysts led by Nikolaos Panigirtzoglou believe that this ruling will force the SEC to approve the spot Bitcoin ETF applications submitted by multiple firms.
The JP Morgan analysts argue that for the SEC to reject Grayscale’s request as well as the spot Bitcoin ETF applications, it would have to backtrack on its previous approvals of futures-based ETFs. Such a move would not only be “very disruptive and embarrassing for the SEC” but also highly unlikely. Therefore, the analysts anticipate that the agency will approve the spot Bitcoin ETF applications, avoiding any potential embarrassment.
The SEC has postponed decisions on spot Bitcoin ETFs proposed by various firms, including industry giants like BlackRock, Fidelity Investments, and Invesco, until at least mid-October. According to the JP Morgan analysts, this delay indicates that the agency is likely to approve multiple spot Bitcoin ETF applications simultaneously, rather than giving a first-mover advantage to a single applicant. This could lead to increased competition in ETF fees, potentially pressuring Grayscale to lower its fees if its trust is converted to the world’s largest Bitcoin spot ETF.
Impact on Crypto and Financial Industries
Despite the positive movement towards regulatory approval for spot Bitcoin ETFs, JP Morgan analysts do not believe that these products will have a significant impact on the overall crypto and financial industries. They point out that spot Bitcoin ETFs have already existed in Canada and Europe for some time but have not attracted significant investor interest. Additionally, the outflows from gold ETFs in recent months did not benefit Bitcoin funds, including futures ETFs. Therefore, the analysts predict that ETFs launched in the U.S. will likely perform similarly.
The SEC’s loss in the court case against Grayscale Investments is expected to have far-reaching consequences. The agency will be forced to review its rejection of Grayscale’s proposal and is likely to approve the spot Bitcoin ETF applications submitted by multiple firms. This development may lead to increased competition in ETF fees and could exert pressure on Grayscale to lower its fees if its trust is converted to the world’s largest Bitcoin spot ETF. However, despite the potential approval of spot Bitcoin ETFs, JP Morgan analysts believe that these products will not significantly impact the overall crypto and financial industries.