Dispatch #94: Grayscale Sues the SEC

Jul 01, 2022 3 min read

Dispatch

In this patch of your weekly Dispatch:

A lawsuit around a denied Bitcoin ETF
Powell has no idea on inflation
DEXes’ surprising resilience

The Big Idea

Grayscale Fires Back

For years, the idea of a US spot Bitcoin ETF has tantalized the crypto crowd. The belief is that this instrument would open up new categories of investors, provide better liquidity and price discovery, and generally benefit the space.

Although it approved the first Bitcoin Futures ETF last fall, the SEC has been disinclined to approve any spot ETFs, citing concerns about market manipulation among other topics. This week, one of the applicants for a spot ETF brought the fight to a new level when they sued the SEC after having their proposal rejected.

The Grayscale Bitcoin Trust (GBT) has long desired to convert itself into an ETF, and is arguing that the SEC is acting “arbitrarily” and “capriciously.” To help make their legal case, they retained former Solicitor General of the United States Donald B. Verilli Jr.

In a statement, Grayscale’s CEO Michael Sonnenshein said: “Through the ETF application review process, we believe American investors overwhelmingly voiced a desire to see GBTC convert to a spot Bitcoin ETF, which would unlock billions of dollars of investor capital while bringing the world’s largest Bitcoin fund further into the U.S. regulatory perimeter.”

GBT shares have been trading at an unprecedented discount of 35% following the SEC’s decision. Whatever happens next, the rejection and subsequent lawsuit have galvanized and aligned a big chunk of the crypto community. Buckle up, folks.

The Latest In…

European Regulation

We’ve been closely following the developments of the Markets in Crypto-assets Regulation (or MiCA) that has been in the works in Europe for two years now. This week, EU policymakers struck a deal on the legislation. While details are still sparse, reports suggest that:

NFTs will largely be outside the scope of the deal.
Stablecoins will face strict caps in how much volume they can trade each day.
Crypto service providers will be required to adhere to strict requirements and can be held liable if they lose investors’ assets.

If there is a brightspot, it appears that reporting rules around self-hosted wallets have been relaxed from previous problematic versions of the bill.

The Latest In…

Macro

Are you ready to be reassured? No really, to really feel the warm embrace of feeling confident in the officials who make critical decisions about the economy? In a conference appearance this week, Federal Reserve Chair Jerome Powell spoke candidly about how inflation is structurally different now than it was before. He said “I think we understand better how little we understand about inflation.” Yes, that’s a real quote. Yes, that’s the person in charge of fighting inflation. Don’t get us wrong, we appreciate humility more than false confidence, but it still isn’t the most reassuring thing we’ve ever heard.

The Latest In…

Mining

It’s a rough time to be a miner. Bloomberg reported earlier this week that up to $4B in Bitcoin miner loans are coming under stress. This is because the equipment they used to collateralize those loans has dropped significantly in value. One company that seems to be in particular trouble is Compass Mining – a firm that allows retail investors to be involved in Bitcoin mining. The company’s CEO and CFO both resigned this week as part of a broad restructuring around a number of outstanding debts.

The Week’s Most Interesting Data Story

DeFi TVL Is Down but DEXes Press Ahead

Just about any way you look at it, it has been a rough stretch for DeFi. Take for example the significant decrease in total value locked (TVL). From recent highs above $220B just a few months ago, DeFi now sees a TVL of just $81B, the lowest since July 2021. That said, decentralized exchanges, or DEXes, have shown surprising resilience. Not only are exchange volumes off by a lower percentage dip than the drop in TVL, but decentralized borrowing and lending protocols have been behaving quite orderly.

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