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Grayscale’s legal victory against SEC makes approval of Spot Bitcoin ETF more likely: JPMorgan

It is more likely that the Securities and Exchange Commission (SEC) would be forced to approve spot bitcoin (BTC) exchange-traded-fund (ETF) filings from several asset managers after a federal court ruled that the regulator’s rejection of this proposal should be reviewed. Grayscale’s effort to convert the Grayscale Bitcoin Trust (GBTC) into an ETF, JPMorgan (JPM) said in a report Friday.

“The most important element of the Grayscale v. SEC was that the denial by SEC was arbitrary and erratic because the Commission failed to explain its different treatment of similar products, i.e. futures-based bitcoin ETFs,” analysts led by Nikolaos Panigirtzoglou wrote. . Grayscale and CoinDesk are both owned by Digital Currency Group (DCG).

The court argued that spot market fraud and manipulation carried similar risk for both futures and spot products because the “spot bitcoin market and the CME bitcoin futures market are so closely correlated,” the report said.

JPMorgan notes that the court ruled there was no justification for allowing futures-based bitcoin ETFs but denying spot ETFs. That matters a lot because it implies that if the SEC were to defend its refusal of Grayscale’s proposal to convert GBTC, “it would have to retroactively withdraw its previous approval of futures-based bitcoin ETFs.”

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A retroactive withdrawal would be extremely disruptive and embarrassing for the SEC and therefore seems unlikely, the bank said.

However, while the Grayscale ruling may move closer to final approval of a spot bitcoin ETF, such approval is unlikely to prove a game changer for the crypto market, the note said.

Spot bitcoin ETFs have existed outside the US for some time, but have failed to generate significant investor interest, and bitcoin funds in general, both futures-based and physically backed funds, have since Q2 2021 attracted little interest from investors, the report said. .

Spot-based ETFs allow investors to hold their positions indefinitely while eliminating the rollover costs associated with futures ETFs. The crypto market is optimistic that an eventual launch of spot-based ETFs will open the floodgates to mainstream money.

Read more: SEC Could Prepare Alternative Arguments To Reject Spot Bitcoin ETFs: Berenberg

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