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There is a 70% likelihood of Grayscale winning the SEC lawsuit

Grayscale's lawsuit against the SEC has a high chance of success, potentially leading to approval of BlackRock's Bitcoin spot ETF application and signaling a shift in the SEC's attitude towards Bitcoin products.

Key Points

  • Grayscale has a 70% chance of winning its lawsuit against the SEC over the denial of its Bitcoin spot ETF application.
  • BlackRock may benefit from Grayscale’s lawsuit as the SEC may approve its spot ETF application to offset potential losses.
  • BlackRock’s partnership with Coinbase for custody might undermine its application due to the SEC’s lawsuit against Coinbase.
  • The approval of a leveraged Bitcoin Futures ETF and BlackRock’s filing suggest a possible shift in the SEC’s stance on Bitcoin products, increasing the chances of a Bitcoin spot ETF approval, although it remains uncertain at 50%.

According to Bloomberg Intelligence Senior Legal Analyst Elliot Z. Stein, there is a 70% chance that Grayscale, the company behind the world’s largest Bitcoin fund, will prevail in its lawsuit against the U.S. Securities and Exchange Commission (SEC). Grayscale’s lawsuit accuses the SEC of arbitrarily denying its Bitcoin spot ETF application last year, while approving similar futures ETF products. The first round of oral arguments in March revealed skepticism from the three judges overseeing the case towards the SEC’s position, boosting Grayscale’s odds of victory from 40% to 70%.

BlackRock’s Potential Benefit

Interestingly, Stein believes that Grayscale’s optimistic outlook in its lawsuit may actually benefit BlackRock, a $10 trillion asset manager. BlackRock recently filed for a spot ETF product, and the analyst suggests that the SEC may approve BlackRock’s application in order to soften the blow of the potential loss in Grayscale’s lawsuit. This could indicate a shift in the SEC’s attitude towards Bitcoin products.

However, James Seyffart, Bloomberg’s ETF analyst, thinks that one aspect of BlackRock’s filing may undermine its application. BlackRock has partnered with Coinbase for custody, and considering the SEC’s recent lawsuit against Coinbase, Seyffart believes that the odds are still stacked against BlackRock’s approval.

End Points

Bitcoin’s price rallied above $31,000 this week, driven by the optimism that the SEC may finally approve a Bitcoin spot ETF. BlackRock’s filing has brought hope considering its historical high approval rate for submissions. Another positive sign was the SEC’s approval of a leveraged Bitcoin Futures ETF last week. Bloomberg’s Seyffart sees this as an indication that the SEC may be “lightening up” on its stance towards Bitcoin products.

While there is a 50% likelihood of a Bitcoin spot ETF being approved this year in the United States, the odds are still uncertain. Grayscale’s lawsuit appears to have stronger prospects of success than BlackRock’s application, given the skepticism expressed by the judges. However, BlackRock’s filing may also benefit from a potential change in the SEC’s attitude towards Bitcoin products.