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No Grayscale ETF Appeal: Is the SEC Tiring of its Crypto Crusade?

The deadline for the SEC to appeal against the court’s ruling on the Grayscale Bitcoin ETF application passed without event yesterday. Last week its appeal against the preliminary Ripple judgement was denied. Could the regulator finally be accepting defeat in its war on crypto?

The U.S. Securities and Exchange Commission (SEC) can normally be relied on for its ‘arbitrary and capricious’, not to mention tenacious hounding of all things crypto and crypto-related. So why would it pass up the opportunity to appeal a judge’s assertion that it had been wrong in its rejection of Grayscale’s spot bitcoin exchange-traded fund (ETF)?

That is exactly what happened yesterday as the deadline to appeal passed without so much as a murmur of dissent from the regulator. What’s more, Gensler and co. are reportedly now ‘actively engaging’ with spot bitcoin ETF issuers, making many believe that we may see one or more products approved in time to add to our yearly list of desired gifts from Santa Claus.

There is always the possibility that the SEC will find some other reason to reject the Grayscale ETF when its application is reviewed again. But having been recently chastised by both the court of appeals and members of congress for its discrimination against bitcoin ETFs, perhaps the regulator is finally losing the will to fight the multi-faceted hydra that it now finds itself facing.

Even if the Grayscale product is not accepted, there are multiple open applications and re-filings of previously denied applications for spot bitcoin ETFs sitting in the SEC’s to-do pile. One of these comes from the well-respected BlackRock, which has a historical record of 575 approvals against just one rejection when it comes to ETF applications.

Elsewhere, we last week Observed the regulator lose its motion for appeal against the preliminary ruling in the Ripple case. While the final showdown in this case will not reach court until April next year, unless the SEC can somehow change the judge’s mind in the intervening period it would appear to be standing on very shaky ground indeed.

As the preliminary ruling states that programmatic sales of Ripple executed on exchanges do not qualify as securities, it would follow that this also applies to programmatic sales of the vast majority of other cryptocurrencies on exchanges. Because there is no reasonable expectation of profit based on the efforts of the token issuer, they would presumably fail the Howey test in the same way.

This is also likely to have an impact on the SEC litigation against Coinbase and (perhaps to a lesser extent) its ongoing court action against Binance. While both cases contain multiple allegations of regulatory violations, a key component of each is the operation of an unregistered securities broker, exchange and clearing agency.

If the cryptocurrency tokens specified in each case are found to not be securities in terms of programmatic secondary sales on exchanges, then a large part of both cases just falls apart.

So, faced with an uphill battle to achieve any kind of success, will the SEC make the long-overdue decision to bow out of its ‘war on crypto’? Only time will tell, and we will be here to Observe as always.