Nate Geraci, the head of the ETF Store and host of the ETF Prime podcast, recently spoke with Scott Johnsson, a finance lawyer at Davis Polk. They talked about Grayscale potentially taking a risk by moving its spot Bitcoin exchange-traded funds (ETF) to the New York Stock Exchange (NYSE) despite the US SEC’s reluctance to approve the move.
The two individuals also discussed the positive aspects of the move, its potential issues, and what it could mean for both parties involved.
Grayscale Considers NYSE Listing For GBTC
During the discussion, Geraci opined that Grayscale’s strategy for listing GBTC on the NYSE is to get the attention of the United States Securities and Exchange Commission (SEC) and later seek the regulator’s forgiveness or point to the recent court victory.
However, Geraci added that there is a strong collaboration between the NYSE and market makers. Thus, Grayscale’s strategy might go as planned.
Nevertheless, the podcast host pointed out that the US regulator had exceeded its deadline, implying that the ETF could be considered “as approved” regardless of an official confirmation. While analyzing the risks and benefits of the move, Geraci stated that the NYSE would benefit the most from the move.
He noted that the NYSE will always defend the interest of ETF issuers since it desires listings’ trade volume.
Debate Over NYSE’s Role
However, Johnsson doubts the NYSE’s commitment to embracing this risky move toward listing a Bitcoin ETF. He noted that Grayscale needs to include an authorized ETF registration statement before the NYSE can list its ETF, which Grayscale can’t provide at the moment.
Meanwhile, Johnsson shares similar thoughts with Geraci in that he finds it difficult to imagine that the NYSE Arca will agree to the deal. While Johnsson agreed with some of Geraci’s points, he remained skeptical.
He believes the SEC still has enough resources to reverse such a move, regardless of current factors such as disclosure review. Geraci further explained what the NYSE will benefit from supporting Grayscale’s proposal.
He said the NYSE would gain more credibility and new businesses with ETF issuers, significantly boosting its industry standing and influence. The ETF Store executive added that he did not see the SEC seriously questioning the NYSE’s credibility at this stage.
He noted that the final decision would be based on carefully evaluating costs and benefits.
Grayscale And SEC’s Ongoing Debacle
Meanwhile, Johnsson shared insights regarding the ongoing dispute between the SEC and Grayscale over converting GBTC into a Bitcoin ETF. He opined that Gary Gensler-led SEC might argue that Grayscale would have to resubmit its application following the recent court ruling.
Recall that the SEC issued a disapproval order to Grayscale on June 29, 2022. However, the DC Circuit ruled that the commission’s disapproval order was unconstitutional on August 28, 2023.
Hence, Johnsson questioned whether the regulator had the authority to issue such a disapproval order, even if it was later found to be illegal. The finance lawyer argued that the main issue is how the law is interpreted from the perspective of the SEC.
Thus, it is no surprise that Grayscale’s legal team contends that if the SEC’s order is deemed void, GBTC’s conversion is automatically “deemed approved,” requiring Grayscale to take no further action.
While this argument has some merit, Johnsson cautioned that it will not guarantee a clear victory for Grayscale. Although he admits that the ‘deemed approved’ argument appears plausible, it cannot be sufficiently proven in court.
Johnsson posited that Grayscale could use this position as leverage in negotiations with the financial watchdog. However, he concludes that a time-saving option would be for the crypto asset management firm to reapply rather than take up the issue in court.
Accordingly, an official blog post by Grayscale indicates that it has submitted a fresh application with the US regulator to list its GBTC stocks on the NYSE.
