Securities and Exchange Commission Chair Gary Gensler would likely consider his regulation-by-enforcement approach to the cryptocurrency industry largely successful, but it has suffered high-profile setbacks this summer. The latest was a recent ruling in the U.S. Court of Appeals for the District of Columbia Circuit, where the panel sided with Grayscale Investments in its bid to convert its bitcoin trust into a bitcoin spot exchange-traded fund. In the decision, the three-judge panel ruled that the agency’s reasoning for rejecting Grayscale’s conversion attempt was “arbitrary and capricious,” forcing the SEC to re-evaluate the company’s proposal.
While some industry members celebrated the decision as paving the way for the emergence of bitcoin spot ETF, there is reason to be cautious. The agency could appeal the court’s ruling or again deny the attempt in a way that it has not previously used to block similar applications. Past rejections, including Grayscale’s bid, have hinged on the argument that those offering the product could not sufficiently prevent fraud or manipulation in the underlying market. Some see this as an inconsistency when the agency has approved bitcoin futures ETFs and the markets are closely correlated. The notable difference is these futures trade on the Chicago Mercantile Exchange, a U.S. commodities exchange regulated by the Commodity Futures Trading Commission, and no comparably regulated exchange exists for the bitcoin spot market.
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