Game Changing Decision for Crypto

abused its discretion. That's the legal standard for agency action. Agencies must make their decisions, regulatory decisions on a reasoned, rational and well informed basis, and the DC Circuit basically said, no,

you did not. And the reason why they found it arbitrary, capricious, abuse discretion again those the words of the last one hundred years, was the fact that within the last year or so, the Commission had approved similar products, and those being exchange traded products ETPs for bitcoin futures, and the DC Circuit and a very thoughtful, very extensive opinion laid out in great detail how there was extraordinary similarities between

the markets for bitcoin futures, and while distinct from bitcoin per se, on the spot market, there are many many similarities. So bottom line is this, says the DC Circuit SEC. You approved two of the bitcoin futures products to be traded on various exchanges, but you said no to grey scales spot market bitcoin product, and that's arbitrary, capricious, abuse discretion, and that's how we got to this decision.

the way, for this audience. Because the DC Circuit Circuit Judge Naomi Raoul took the time to really explain to both expert and neophytal, like what bitcoin is all about, how it works, the difference between Bitcoin spot market bitcoin futures. But once again, the essence of the opinion was to say, look, okay, you took the bitcoin futures products from two other aftlets. I think one it's called Valkyrie and Creesium. I apologize

mispronouncing that, and you'll prove that. But the similarities are so much so, especially with respect to preventive measures to prevent against fraud and market manipulation, that basically it's again the circuit's words, were similar products. So if you approved two products that were similar, then you have to approve the third one, which is the great product. With respect to criticism and mist a cancer, Look that's been going

on and it has to go on. It should go on for the simple reason that he is an appointee of the administration. He must be accountable to the American people. He's an unelected person and again a person of great credentials, great reputation, etc. The bottom line, the market has a right to criticize, but the court here I do not view in any ways criticizing Chairman Againstler's particular tactics or policies in this regard, so he'll keep going on doing

what he's doing. But once again, to sort of fairly exposit with both sides, the crypto market is of course going to be critical because they're like, look, it's crypto, we know what we're doing. Leave us alone. That's fine to an extent, But again some people used to say that in nineteen twenty seven, ninety twenty eight, and that's how you have the un regulated market in the Creation

twenty nine. On the other hand, we do live in a free enterprise, free market, and therefore or there has to be a point where the regulators have to sort of step back and say, all right, let the market function, let the market weed things out, and let's experiment. And I also think that's where we have to make the point that regulatory authority is strictly cabined by the statutory

authority that Congress gives it. And in an indirect way. Okay, And again the d C Circuit really not criticizing, but by using the legal standard and also calling upon the statute which regulates the sec process June for how new products come to market and how they were approved by a rule change, et cetera. Basically, the DC Circuit is saying, look, there's rules, there are statutes, they were made by Congress,

and now SEC you have to follow them. Oh, when in this instance you did not follow the rule, your actions were here we go again aubitrary, capricious abuse of discretion because essentially you didn't follow the statute, you were inconsistent in your results on these substantially SMaL products, so on and so forth.

here because Judge raw was very well known. One of the other judges there was Harry Edwards, a senior Circuit judge from decades ago, and the chief judge of the DC Circuit, which is Judge Trinavasan who you may remember only a few years ago was on the short list of mister Obama to be the next nominee to the US Supreme Court. So that's kind of a you know, a well credentialed supercharged panel. But that's only the three.

So they're going to ask for non bank hearing and then whoever wins or loses, and that is probably going to appeal to the US Supreme Court. One of the reasons why I'm so convinced that there will be an appeal is number one, it's the government and as we will and as your audience knows well, the government appeals every averge decision because heck, they're funded by our at tax payer dollars, all right. And secondly, the government hates to lose, all right. And the SEC has had a

few setbacks in recent years. Right now, there's the Arcas case Penny with respect to the power of removal of SEC administrative law judges five years ago they lost Fluccia case that SEC admin law judges have to be appointed by the President and so forth. So the SEC. You know, they had a few wins, but they've had a few losses here as well, so darn right they're not going

to take this sitting down. And also, in essence right now, June, they've taken a black guy because it's not fun for them to have the DC Circuit, which hears many, many of these cases when it comes to federal regulations and challenges there too. They're really the locust of all dis litigation. So when the DC Circuit says, hey, Sec, you are arbitrary, you're capricious, you abuse your discretion, they don't like that,

so they want to get that flipped around. I will say this, though, while I am convinced that an appeal shall be had by whatever means, the bottom line is

what are the chances of prevailing? That's a pretty good question too, And if you don't mind, I'll answer it by saying that's gonna be tough because basically, when you have a decision that says the agency acted in an arbitrary, capricious matter, that's very fact intensive and as we all well know, the Supreme Court does not engage in fact finding. They take the record as is, and the DC Circuit,

and again kudos to Circuit Judge Rau. There's a very extensive factual record here, built upon the Commission's own record, But there is extensive fact finding here where the DC Circuit, in the Greyscale decision, explains point for points why the Commission's decision was arbitrary and capricious.

the SEC. But the Court may very well not decide this case because once again we come back to the fact June that it was decided on a very narrow

legal ground. There's no new legal ground to be broken. Here. Although, as you said at the outset, and I agree completely, this is a very game changing decision for the crypto industry as a whole because in many respects it provides a roadmap for other funds and a path for various firms to create investment vehicles in crypto, because all they really have to do is read the DC Circuit's opinion and say, oh, okay, this is how Greyscale did it.

So guess what inimitation is the sincerest form of flattery, So they got it right before the DC Circuit. Whatever they did will do. And especially I think what's important is the DC Circuit made much of the fact that one of the reasons why the SEC the decision was arbitrary was they basically pooh poohed the fact they overlooked the fact that there is more than adequate surveillance to

protect more in integrity. So again I'm not giving any advice to crypto fund managers, but read that opinion for yourself and you'll see how important it is to demonstrate that whatever your proposed product is going to be, you have to show that there are safeguards, guardrails and so forth to prevent FUDAM manipulation, and that your product is tied to market surveillance such as that conducted by the CMME,

the Chicago Mercancy Exchange. That way, in the event of manipulation or fraud, it can be detected and rooted out. That was a very important guidepost, if you will, that the DC Circuit set out of his opinion and words that the crypto industry must take very very seriously and follow to.

not a done deal, and thank you. That's an excellent point. And I concurt completely is that it's not over by any means, and the SEC may find other grounds to object. I may say, okay, we would called arbitrary caprecients this time. But now let's really dig in and tell a future

court of review, which would probably be the DC Circuit. Again, this is why we said no. If indeed they say no. But you know, Gray Scales got plenty of work to do, so they're not there yet, but they're a big step closer to getting that ETP out there.

decided that. And we have to remember, and I haven't digested completely, it's a big decision, but as we know, in essence, the court said, look, some aspects of bitcoin are commodities, and the SEC has no jurisdiction to kick

it over the CFTC. But other things do qualify as securities, and therefore the SEC can regulate them, etc. But of course Ripple is going to be appealed, and that probably will get all the way up to the Spring Cord, I would think, because it's such an important issue, not just in terms of the law, but in terms of the future of the American financial markets. So that's let's call it unsettled at this time. With the other actions, again,

they're very different. The nances, I remember we talked about this quite a while ago, and they are a host of charges there. That's the one, if I recall, is where they've been charged with not registering. Is the fund that's really, really serious. So this is important work that the Commission has to do. So I don't think they should pause, but they should take the weekend, if you will, to sit back, reflect and say, Okay, what's the strategy here?

Because you've got a lot of different pieces. They're fighting a lot of different battles on different fronts, and I think there is to an extent an overall strategy. But I think Chairman Gensler owes it to himself and more importantly to the American people and to the financial markets, to say, let's have a comprehensive strategy here. To whatever extent the rippled decision was adverse to the Commission, the SEC has to learn from that and say, okay, we've

lost this, and again they're going to appel it. But as things stand today, June I would say they need to reflect upon that and take a step back and say, okay, how do we modify a strategy from here? And once again, there is still at the very heart of this, okay, that the eye of the storm is that fundamental issue

when it comes to investing in bitcoin. Are you buying a commodity which kicks it over to the CFTC and the commodity's laws, or are you buying a security which is purely the SEC's bailiwick and under the federal securities laws. And that's the key distinction. And because of the newness of crypto, because of its its flexible nature, we're really not sure about all that, and I certainly don't want

the SEC to back off. But at the same time, the bitcoin industry, the crypto industry, has every right to continue to innovate, to make progress, move forward what they're doing. But again within this the regulatory framework that's there, so again many many unresolved issues, but I really think it depends upon the industry itself. It can, and it should,

and it must innovate. And then as it innovates, we see, Okay, are you selling a commodity, you're selling in security and if so, have you complied with regulatory framework pertinent to each And also.

But what it demonstrates is that you can have two judges of equal rank in the same district and disagree, and they're allowed to do that. And there's about another twenty five judges in Southern District and they could also all disagree. That's why the real key is going to be, let's see what happens when Ripple and the Raykoff decision I don't recall which case it was, goes up to the Second Circuit because they're there to conciliate these and

to reconcile one decisions to the other. And then they get the next to last word. And why say next to last word is because they could still go to the U. Supreme Court. But let's also keep in mind, as the Supreme Court itself said decades ago, they regard the Second Circuit as the quote mother court close quote of the federal securities laws. They are very deferential to what the second Circuit says, so the battle or the

controversy is far from over June. This is just one of many battles, and we have to see what the second circuit says about Ripple and these related cases in the years to come. And also as we have new permutations and innovations by the industry, once again, okay, where do they fall in the market, which regulatory framework would they fall within? Etc. So I think really bottom line is that everybody's going to go great guns. Crypto is

on a roll. It's not going to stop. Okay. Gary Ginstler wants to make sure his agency is regulating this, and that's consistent with his personal behavior because he regulated it is the head of the CFTC not too long ago. And the CFTC says, wait a minute, okay, Bitcoin, that's a commodity. It's like, you know, the kind of future. It's like oil and gas and pork bellies and what have you. So guess what we want to regulate it too. So a lot of action, a lot of controversy in

the years to come. This is just one stop, Okay. My advice is everybody have a good Labor Day weekend because the battle's going to start as soon as we get back.