US Court Ruling Raises Hopes For Bitcoin ETFs

Judges back Grayscale in a setback for SEC while another court dismisses lawsuit against Uniswap

September 6, 2023
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Compiled by the Oliver Wyman Forum

A US appeals court ruled that the Securities and Exchange Commission (SEC) must reconsider Grayscale Investment’s application to launch a spot Bitcoin exchange-traded fund (ETF), raising hopes for a number of new products. A separate court rejected an investor lawsuit against Uniswap, setting a potentially positive precedent for decentralized finance (DeFi). Meanwhile authorities around the world took steps to bring cryptoasset markets closer in line with the rules of conventional finance while encouraging innovation. These are among the most notable recent developments in the future of money.

Legal Briefs

Grayscale Wins Bitcoin ETF Case Against SEC

A US federal appeals court ruled on Aug. 29 that the Securities and Exchange Commission (SEC) must reconsider asset manager Grayscale Investment’s application to launch a spot Bitcoin exchange-traded fund (ETF), dealing a setback to the agency.

Writing on behalf of a unanimous three-judge panel, Circuit Judge Neomi Rao said the SEC’s denial of Grayscale’s application was “arbitrary and capricious,” noting that the agency has approved Bitcoin futures ETFs. The SEC had claimed that spot markets for Bitcoin are unregulated and subject to manipulation in denying Grayscale’s application to convert its Bitcoin trust into an ETF.

The ruling could potentially lead to a flurry of ETFs as several asset managers – including BlackRock, the world’s largest by assets – have applied to the SEC in recent months to launch Bitcoin ETFs. It’s uncertain when any of those products might hit the market, though. The SEC has 45 days to decide whether to abide by the Grayscale ruling or appeal it. And on Aug. 31, the agency extended its review of the applications form other asset managers until mid-October, and could delay final decisions for several additional months. 

US Court Rejects Lawsuit Against Uniswap Over “Scam Tokens”

In a legal case with potential broad ramifications for decentralized finance (DeFi) applications, a US judge on Aug. 30 dismissed a proposed class-action lawsuit against Uniswap Labs, saying issuers of “scam tokens” – and not the crypto exchange where they were traded – were responsible for any investor losses.

The suit was brought by six individuals who claimed they had lost money by investing in several “scam tokens,” and sought to hold Uniswap, its foundation, CEO Hayden Adams, and three venture capital investors liable.

District Judge Katherine Polk Failla of the US District Court for the Southern District of New York dismissed the plaintiffs’ argument, ruling that it was akin to “attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer." Any liability should attach to the token issuers but Failla acknowledged they are effectively unknowable because of the decentralized nature of Uniswap’s protocol. “Whether this anonymity is troublesome enough to merit regulation is not for the Court to decide, but for Congress,” she wrote.

Business Developments

Coinbase Takes Undisclosed Stake In Circle

Cryptocurrency exchange Coinbase will take an undisclosed equity stake in Circle Internet Financial and Circle will take sole control of the governance of its USDC stablecoin as part of revamped relationship between the two US-based crypto players, the two companies announced on Aug. 21.

Under the arrangement, the two companies will abandon the Centre Consortium, a jointly managed self-governance body for USDC, leaving Circle solely responsible for complying with regulations on the governance of reserves backing the stablecoin and for holding all of the coin’s smart contract keys. Growing regulatory clarity around stablecoins has eliminated the need for the consortium, they said, adding that the new structure would streamline operations and enhance the accountability of Circle as the issuer of USDC.

USDC’s market capitalization has fallen by about 40% since March, when the stablecoin briefly lost its peg to the US dollar after Circle disclosed that $3.3 billion of USDC’s cash reserves were held on deposit at the failed Silicon Valley Bank. USDC remains the second-largest stablecoin, behind Tether, and higher interest rates have increased the income issuers earn on reserves. Coinbase’s revenue-sharing agreement with Circle was a significant factor behind its more than six-fold increase in interest income in the second quarter of this year, to $201 million.

Binance To End Support For Stablecoin BUSD

Cryptocurrency exchange Binance announced on Aug. 31 that it would phase out its support for Binance USD products in coming months and encouraged users to convert their holdings into other stablecoins before February 2024.

Binance USD was one of the leading dollar-pegged stablecoins, but its use has dwindled since rival exchange FTX collapsed in November 2022 and the Securities and Exchange Commission sued Binance for alleged violations of US securities laws in June 2023. There was $2.1 billion worth of BUSD outstanding on Sept. 1, down from a high of more than $23 billion in November 2022, according to

Separately, Mastercard will stop offering Binance-branded debit cards in Argentina, Brazil, Colombia, and Bahrain, Blockworks reported on Aug. 25, citing spokespeople at both companies. Binance also paused new card applications in July for its co-branded European card with Visa, Blockworks reported, citing a Binance spokesperson.

Swift Tests Transfer Of Tokenized Value Across Blockchains

The Society for Worldwide Interbank Financial Telecommunications, the global financial messaging service known as Swift, announced on Aug. 31 that it had demonstrated the ability to transfer tokenized value across multiple private and public blockchains in tests with a number of major financial institutions.

Swift conducted experiments with firms including Australia and New Zealand Banking Group, BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange and the Depository Trust & Clearing Corp. They employed an interoperability protocol developed by Web3 services platform Chainlink to connect Swift’s network to Sepolia, a testing network on the Ethereum blockchain. The findings “have the potential to remove significant friction slowing the growth of tokenized asset markets,” Swift said.

London Stock Exchange Plans Blockchain-based Trading Venue

The London Stock Exchange Group plans to set up a new digital markets venture that would use blockchain technology to trade traditional financial assets in a regulated setting, the Financial Times reported on Sept. 4.

Murray Roos, head of capital markets, said the group believed public blockchain technology had reached an “inflection point” where it was good enough for adoption and investors were ready. The company is considering creating a separate legal entity for the business and hopes to have it up and running within a year, most likely focusing initially on private assets rather than public ones like listed equities.

Majority Of TradFi Exchanges Offer Or Plan Crypto Products, Survey Finds

A majority of conventional exchanges currently offer trading in crypto-related products or services, or plan to introduce such offerings, according to a survey by the World Federation of Exchanges published on Sept. 5.

Twelve of 29 exchanges surveyed by the federation in 2022 were offering crypto products or services, such as trading in tokens or crypto-based exchange-traded funds and crypto custody, while seven of the remaining 17 exchanges were planning to offer such services in the future. The biggest benefits exchanges cited for such innovations were to advance their technology, to generate new revenue sources, and to become a pioneer, while the biggest risks they cited were cybersecurity, market volatility, and operational risk. Regulation and reputation were cited as the biggest challenges exchanges face in introducing crypto-related products.

Policy Front

BIS Suggests Crypto Regulatory Agenda For Emerging Markets

The growth of cryptoassets poses risks to financial stability in emerging market economies and authorities should focus on three main issues in establishing an appropriate regulatory framework, the Bank for International Settlements (BIS) said in a report published on Aug. 22.

Stability risks reflect the fact that emerging markets (EMs) have adopted cryptoassets more readily than advanced economies, the report said, noting that EM countries account for 18 of the top 20 countries in Chainalysis’ Global Crypto Adoption Index. Reasons for the high adoption include hedging against inflation or currency depreciation risks and the use of crypto to send remittances overseas.

The report identifies six financial stability risks, including the risk of volatility in cryptoasset markets, liquidity risks in centralized exchanges, operational risks such as cyberattacks, and the risk that cryptoasset growth could disintermediate and undermine confidence in banks.

The BIS suggested a three-step process for regulating cryptoasset activity. Authorities should define roles and responsibilities for regulatory and supervisory bodies and allocate the resources to fulfill those roles. They should consider enhancing activity-based regulation with approaches based on the type of entity involved, and coordinate with authorities in other countries to define the kinds of data and disclosures required for effective market monitoring.

US Proposes Tax Reporting Obligations For Crypto Exchanges

The US Internal Revenue Service on Aug. 25 proposed new rules that would require cryptocurrency exchanges to report details of clients’ crypto transactions similar to the way in which brokerages report their investors’ stock and mutual-fund transactions.

The proposal would require exchanges to report US taxpayers’ gross proceeds from crypto transactions starting in 2026 for the 2025 tax year. The following year, exchanges would have to start reporting the cost basis for assets purchased in 2023 or later. The proposed rules also would apply to crypto payment processors, some decentralized finance (DeFi) platforms and wallet providers, and to other digital assets such as non-fungible tokens, or NFTs.

Hong Kong Green Bond Shows Promise Of Tokenization

Hong Kong’s first tokenized bond issue demonstrated the potential of blockchain technology to improve efficiency, liquidity, and transparency in bond markets while also suggesting lessons for overcoming fragmentation across platforms and enhancing the legal and regulatory framework for asset tokenization, the Hong Kong Monetary Authority said in an Aug. 24 report.

Under Project Evergreen, the Hong Kong government in February issued HK$800 million ($102 million) in green bonds on a private, permissioned blockchain as part of its strategy of developing a virtual assets market. The issue was non-native, with bonds issued conventionally and then tokenized on the blockchain. Secondary trading is conducted on the traditional over-the-counter market with settlement recorded on the blockchain.

To fully unlock the potential of tokenization, the authorities could seek to develop connections between different blockchain platforms and with the existing bond custody systems, adopt tokenization in repurchase agreements to improve market liquidity, and enhance the legal and regulatory framework, the report said.

Australian Pilot Finds Potential Benefits Of A CBDC

A pilot test of an Australian central bank digital currency (CBDC) demonstrated a number of use cases that could improve the country’s payments system and also highlighted a range of legal, regulatory, technical, and operational issues that need to be better understood, the Reserve Bank of Australia (RBA) said in a joint report with the Digital Finance Cooperative Research Centre on Aug. 23.

The RBA issued a small-scale pilot CBDC to selected industry participants in a ring-fenced environment. It found that the CBDC enabled complex, multi-party or multi-stage payments to be executed automatically using smart contracts, reducing the need for costly reconciliation processes and the risk of failed transactions. The CBDC also supported the tokenization of assets, including debt securities and carbon credits, with atomic settlement that improved market efficiency. A CBDC also could promote the interoperability and uniformity of new private forms of digital money like stablecoins and tokenized deposits and enhance inclusion for groups with poor access to banking services.

The pilot also highlighted the need for further work on a number of issues, such as whether some tokenized digital assets were regulated financial products under existing laws and whether new business models that a CBDC could enable would change the nature of risks involved in transactions.