Grayscale Expects a Long Battle with SEC, Saylor Believes ETH to be a Security – Where Does BTC Go from Here?

While the last few days offered a slight reprieve from a months-long downward trend, Bitcoin is now struggling to maintain its recent gains, down roughly 2% on the day.  The following are a few bits of commentary, and events from recent days, which may shed light on where Bitcoin goes from here.

Challenging the SEC

When Grayscale saw its most recent Bitcoin Spot-ETF application denied yet again by the SEC, it wasted no time in announcing that a ‘Petition for Review' had been filed.  In it the company labeled the continued denial of such a product by the SEC as both ‘arbitrary and capricious'.

Unfortunately for investors expecting this to be a quick process,  a fast turnaround should not be expected.  In a recent communication by the legal team at Grayscale, in an attempt to keep the public apprised of the steps it is taking, the following is stated.

“We can’t be certain about timing, but based on how long federal litigation tends to take – including briefings, oral arguments, and a final court decision – it can typically take anywhere from twelve months to two years, but could be shorter or longer. However long it takes, we believe the strength of our arguments should result in a final decision in our favor at the D.C. Circuit Court of Appeals.”

In fact, Grayscale indicates that this is already a short-than-usual timeline, as the case goes, “…directly to the D.C. Circuit Court of Appeals due to the fact that the petition concerns a federal agency.”

Regardless of how long it takes, Grayscale has stood firm in its believe that the SEC's decision to approve a Bitcoin Futures ETF should allow for the approval of a spot ETF since each would, “…derive their pricing from the same underlying spot Bitcoin markets” – an important distinction that potentially makes the SEC's argument surrounding regulation of the Chicago Mercantile Exchange a moot point.

With the speed at which digital assets move, a potentially 2-year battle is quite a long time.  Long enough that while it is taking place, markets might have matured to the point that the SEC approves an application from the scores of other companies attempting to launch their own Bitcoin Spot-ETF.

Security or Commodity?

Bitcoin is undoubtedly a commodity.  Not only do the masses agree on this point, so do the vast majority of regulatory bodies from around the world.  In fact, it was only recently that SEC Chair Gary Gensler stated publicly that the only digital asset he was willing to go on record calling a commodity is Bitcoin.  So what does this mean for the thousands of other digital assets on offer today?  It means that many need to be worried.  The SEC does not have a short memory, and is continually holding companies responsible for past actions which saw the distributions of what it feels were unregistered securities.

While the vast majority of these projects are footnotes in the grand scheme of things, too small to sway markets, there is a one blockchain in particular that could upend how we view digital assets if deemed a security – Ethereum (ETH).  With scores of tokens based atop the Ethereum network, being labeled a security would be devastating to each, along with proponents of Proof-of-Stake networks.  Bitcoin maximalist Michael Saylor recently shared his opinion on the matter in an interview, stating, “I think Ethereum is a security – I think it's pretty obvious its a security.”  Listing network traits such as being issued by an ICO, having a management team, being pre-mined, and even past hard-forks, it is a compelling stance to take.

If such an event were to occur, it could potentially be a significant boon to Bitcoin, as capital would migrate from hundreds of projects in to the top digital asset.  No longer would it be a question of which token will rise to become a world currency and reserve asset – as maximalists would have you believe, it is, and always will be, Bitcoin.

Up or Down?

So should we expect for Bitcoin to rise or decline in value over the coming months?  Most likely it is neither.  Most likely Bitcoin will continue to trade sideways, having already endured a worst case scenario through which it weathered the effects of a war, stagflation, the collapse of Terraform Labs/Celsius/Three Arrows and more.  While this may mean that there is not a huge amount of downside remaining, it does not mean that enticing upside has arrived.

With Grayscale vs. SEC expected to be a drawn out process, continued lack of regulatory clarity, or even a multi-billion influx of long lost BTC (ie. Mt. Gox payout) – it wouldn't be surprising to see the absence of true upside until the months leading up to the next Bitcoin block reward halving in 2024.  While the effect of this event may be diminished in comparison to those in the past due to a lessening influence of miners on the market, it is still one that is anticipated greatly by retail traders ready to jump on the hype train when the time comes.  For now, chances are Bitcoin will do the crab walk and move sideways.