The company behind the world’s largest Bitcoin fund has a 70% chance of overcoming the U.S. Securities and Exchange Commission (SEC) in a major crypto industry lawsuit, according to Bloomberg Intelligence Senior Legal Analyst Elliot Z. Stein.
Given the circumstances, the firm’s analysts assign a 50% likelihood to a Bitcoin spot ETF being approved in the United States this year.
Grayscale, BlackRock, and the SEC
According to Stein, the optimistic outlook for Grayscale’s lawsuit may actually serve to benefit BlackRock – which filed for a spot ETF product last week – rather than Grayscale’s own filing.
“The SEC and Chair Gary Gensler may be bracing for a loss and looking to preemptively soften it or make it meaningless by approving spot Bitcoin ETF application before or around the same time as a court decision,” wrote the analyst in a Tuesday note.
Grayscale’s lawsuit accused the SEC of violating the Administrative Procedure Act and Securities Exchange Act by arbitrarily denying its Bitcoin spot ETF application last year, despite choosing to approve many similar futures ETF products.
The SEC has rejected every spot ETF application to date, citing failures from their prospective issuers to provide sufficient protections and oversight against market manipulation.
During the first round of oral arguments in March, all three judges overseeing the case expressed skepticism of the SEC’s case, stating that the agency “has not offered any explanation that the petitioners are wrong.” For Stein, this skepticism boosted Grayscale’s odds of victory from 40% to 70%.
BlackRock’s Approval Odds
Bitcoin rallied above $31,000 this week on optimism that a Bitcoin spot ETF could be approved after BlackRock’s filing. Prior submissions from the $10 trillion asset manager have a historical approval rate of 575:1.
The SEC even approved a leveraged Bitcoin Futures ETF last week. Bloomberg’s ETF analyst James Seyffart interpreted this as a sign that the SEC’s attitude toward Bitcoin products could be “lightening up,” per a tweet on Friday.
That said, there’s one aspect of BlackRock’s ETF filing that Seyffart thinks could undermine its application: its partnership with Coinbase for custody – an exchange that the SEC just filed a major lawsuit against.
“You have to take that as a risk,” he said during an interview on the Unchained podcast on Friday. “We don’t think the odds of this thing getting approved are like 70% like we think the Grayscale lawsuit. The odds are still stacked against BlackRock.”