What Grayscale’s bitcoin ETF victory over the SEC means for the cryptocurrency and an exhausted market

Published Wed, Aug 30 20239:39 AM EDTUpdated Wed, Aug 30 20231:06 PM EDT

Grayscale's big win against the U.S. Securities and Exchange Commission this week is a significant milestone for bitcoiners, but perhaps not enough to shake the summer lethargy out of investors. On Tuesday, the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC was wrong to deny crypto investment giant Grayscale permission to convert its popular bitcoin trust, known by its ticker GBTC, into an exchange-traded fund. Bitcoin jumped 7% on investor hopes that the ruling will pave the way for approval of one or more spot bitcoin ETFs from BlackRock, Fidelity, Invesco and others. The rally was no rocket ship, however. It wasn't even enough to push bitcoin back to the key $30,000 level that it has struggled to maintain this year. While Wednesday's ruling could open the door to the approval of the first bitcoin ETF in the U.S., ushering in a wave of new demand for the digital asset, it's unlikely to free the market from the regulatory uncertainty that has pressured it all year. "Today's news is the biggest bullish sign for crypto in years," Ric Edelman, founder of the Digital Assets Council of Financial Professionals, said of Tuesday's court decision. "By itself, it won't cause bitcoin prices to double, but it is going to be remembered as a seminal moment in the history of crypto." The U.S. crypto industry has long struggled to get clear regulatory guidance. More recently, in the more than two years since SEC chair Gary Gensler took the helm at the agency, crypto as an industry has become bigger, more sophisticated and more appealing to investors. Yet, the SEC's commitment to regulation by enforcement under Gensler, rather than laying out clear rules, has left companies struggling and hindered new bitcoin investors. "What do we need next? Legislation and regulation," Edelman added. "That is the key to broad adoption by financial institutions as well as the investment advisory field. Having the ETF in place will accelerate their engagement." If Tuesday's ruling does open the door to the first spot bitcoin ETF in the U.S., that could eventually push crypto prices higher. But before that happens, the SEC could also appeal the case or issue a new rejection of Grayscale's bid to convert GBTC to an ETF with sufficient explanation. Both are unlikely, however, according to Edelman. The crypto community expects the SEC to admit defeat and approve Grayscale's application, and probably several others, he added. Owen Lau, an analyst at Oppenheimer, cautioned that Grayscale's court victory "doesn't necessarily mean the SEC will approve Grayscale's conversion, or that there will be a floodgate of spot bitcoin ETF approvals in the near term." But longer term, he's more convinced at least one will be approved. Regardless, Tuesday's court decision "is not enough" to bust the market out of its summer stupor, Lau added. "Investors need to see clear and predictable regulations to be more enthusiastic," Lau said. "With Bitcoin, GBTC and Coinbase up a lot [Tuesday], the near-term headwinds become whether the news today can facilitate faster spot bitcoin ETF applications, more trading volume and further digital assets adoption. The price action appears to price in the best-case scenario, which could present downside risk if the SEC doesn't back down." Despite the recent weakness in bitcoin, it has nevertheless posted a 67% advance so far in 2023.