Grayscale triumphs over SEC: A David vs. Goliath win in the crypto arena

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 ​SEC to review Grayscale’s ETF applicationNFTs: Next on the SEC’s hit list?Asia’s richest man eyes digital assets

From the Editor’s Desk

Dear Reader,

Everyone loves an underdog. And in crypto, an underdog can be any entity in the industry, so long as it puts up a fight against the biggest bully around, a.k.a. the United States Securities and Exchange Commission (SEC).

The SEC has in the past year run amok with a chainsaw in its zeal to cut the industry down to size following the FTX debacle and other crypto catastrophes. So even a player as big as Grayscale – the world’s largest Bitcoin fund – gets to star in the role of the little-guy hero, prevailing in court against the overmighty regulator’s rejection of its bid to offer a Bitcoin exchange-traded fund.

It didn’t have to come to this – and indeed, the SEC may yet appeal against Grayscale’s legal victory – but the company’s court win paves the way for it and other Bitcoin ETF candidates to succeed in offering fund products.

Yet popping the champagne would be entirely premature. Not only are the pending ETF applications still subject to SEC approval, but also, as essentially TradFi instruments, ETFs – even those related to crypto – are a little underwhelming when it comes to the transformative potential of digital assets.

Grayscale’s win nevertheless represents progress, and for that we should be grateful. Progress is also evident from developments in India, where the country’s biggest conglomerate has announced a foray into digital assets, and where the government, currently presiding over the G20, has got with the program and has called for the group to craft global crypto rules.

That’s a welcome change from the bad old days – not even that long ago – when Indian politicians were calling for a ban on crypto and the country’s central bank was doing its best to throttle the industry.

Both developments suggest that the backlash against crypto fueled by the likes of FTX and Terra-Luna may be waning. And both developments convey a clear message: Authorities can’t banish crypto, so they’d better ‘fess up to that and find a way to regulate it.

Until the next time,

Angie Lau,Founder and Editor-in-ChiefForkast.News

This pivotal ruling is not only a beacon of optimism for Grayscale but may also pave the way for other financial heavyweights, such as BlackRock and Fidelity, waiting for the SEC’s decision on their own spot Bitcoin ETF applications. Image: Grayscale/SEC

A U.S. Court of Appeals has sided with Grayscale in challenging the Securities and Exchange Commission’s (SEC) rejection of the firm’s Bitcoin exchange-traded fund (ETF) application, marking a victory for the world’s largest digital currency asset manager that could impact multiple pending Bitcoin ETF applications.

In June 2022, the SEC rejected Grayscale’s application to convert its Bitcoin trust product (GBTC) into a spot Bitcoin ETF. Grayscale then sued the SEC to demand a review of the application.In Tuesday’s court decision, the District of Columbia Court of Appeals said “the denial of Grayscale’s (Bitcoin ETF) proposal was arbitrary and capricious” and granted Grayscale’s petition, meaning the SEC now has to review the company’s application it rejected earlier.The court ruling is a “historic milestone for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper,” Grayscale Chief Executive Officer Michael Sonnenshein said in a Tuesday announcement.Following the court’s decision, Bitcoin price surged from around US$26,000 on Tuesday evening in Asia to about US$28,000 on Wednesday morning, the biggest daily gain for months, according to data from CoinMarketCap.”Undoubtedly this development is a strong positive signal for the market,” Matteo Greco, research analyst at Canada-based digital asset investment firm Fineqia International, said in an emailed comment. “However, final decisions on when and if Grayscale will be able to list its product as an ETF are yet to be made.”

Forkast.Insights What does it mean?

It should be no surprise that the SEC would eventually turn its attention towards NFTs with a goal of disrupting or diminishing the industry. We’ve seen the SEC’s unwillingness to provide clarity into crypto, and more accurately, seemed to be actively working against the industry. Since NFTs entered the mainstream conversation and markets in 2021, the SEC’s public statements on the NFTs’ usage made it clear that many were in the crosshairs for being unregistered securities.

A security is a financial asset that can be sold or traded in a financial market and constitutes an investment of money, made in a business, with the expectation of profit to come through the efforts of someone else other than the investor. Impact Theory seems to check quite a few, if not all, of these boxes. The problem for the rest of the NFT ecosystem is that most projects operate almost exactly the same.

For years, collectors have been wooed by the promise of a new way for creators to build, and a new way for entrepreneurs to raise funds. One that would be free from the needless red tape that the traditional world of business and finance offered. Along the way, the NFT industry, both on the creator and collector side, implored the SEC for guidance and a framework to build with, and not once did that arrive. Now we have tens of thousands of NFT projects who, most with the best intentions, created NFTs using this new technology to build while providing both abstract and financial value to collectors.

Tom Bilyeu, the co-founder of Impact Theory, stated that the level of aggression from the SEC is high, and that they’re definitely looking at many other projects right now. I believe you must now assume that just about every major NFT project has an active SEC investigation in progress, one that has probably been going on for most of the year.

Profile picture projects that offered rewarding experiences for buyers of their NFTs, spoke about driving value to holders, used NFT sales to build their business, and probably most projects who developed a crypto currency are set to be impacted by the SEC’s charges the most. On the flip side, pure collectibles and art should feel no impact. In fact, these are the assets that will thrive.

Already, the NFT market, like many projects and traders, is feeling the pressure. The Forkast 500 NFT Index reflects a decline in the NFT market, losing 1.87% of its value since the SEC’s charges against Impact Theory were announced on Monday. This is likely just the tip of the iceberg. Collectors may begin selling their NFTs before any potential charges because the penalty for offering unregistered securities will be a death sentence for most projects.

Use critical thinking, and ask yourself these questions about your favorite NFT project – did this projects offer an NFT (a financial asset), that can be sold or traded in a financial market (OpenSea), and is an investment of money (crypto), made in a business (NFT project), with the expectation of profit to come through the efforts of someone else other than the investor (“WAGMI” or “to the moon!”).

Mukesh Ambani, the richest person in Asia and chairman of India’s Reliance, has long been a supporter of blockchain technology. Image: Canva/Forbes

Reliance Industries – the largest private company in India – is exploring blockchain technologies and central bank digital currencies (CBDC), said Reliance’s chairman and managing director Mukesh Ambani who is also the richest person in Asia.

Jio Financial Services (JFS) – a newly-launched financial branch of Reliance – “will not just compete with current industry benchmarks but also explore pathbreaking features such as blockchain-based platforms and CBDC,” said Ambani on Monday at Reliance’s annual shareholders’ meeting, according to CNBC.JFS marks Aliance’s entrance into the digital financial products space, which in July announced a partnership with the world’s leading asset manager BlackRock to form Jio BlackRock – a 50:50 joint venture where both are targeting an initial investment of US$150 million.In February, the retail branch of Reliance started to accept Digital Rupee payments, making it the largest Indian firm to adopt the nation’s retail CBDC that launched last December and is now piloted in over a dozen cities.Ambani has long shown interest in the blockchain space, saying in December 2021 that blockchain is a technology he believes in and has the potential to redefine the financial industry, according to local Indian media Business Standard.Meanwhile, at the G20 conference on Tuesday, India Prime Minister Narendra Modi highlighted the need for an international regulatory framework to regulate cryptocurrencies, after the country released a roadmap for global crypto regulation in early August.

Forkast.Insights

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