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JPMorgan Warns of Potential Lawsuits if SEC Rejects Spot Bitcoin ETF Applications

Optimism has been on the rise in recent weeks regarding the SEC’s potential approval of a spot bitcoin exchange-traded fund (ETF). Some experts believe that the green light could come in the next few months. However, if the SEC decides against approving any spot Bitcoin ETF applications, they might face legal challenges.

A recent report from JPMorgan, spearheaded by Nikolaos Panigirtzoglou, suggests that the SEC could be at the receiving end of lawsuits from ETF proponents should they not grant approval for spot bitcoin ETFs. While the analysts believe a complete denial is not highly probable, they do concede that it’s still within the realm of possibilities.

The Path Forward for Bitcoin ETFs

The analysts highlighted in their report that the SEC could face legal repercussions in the event of a rejection. “Declining the proposals might lead to lawsuits targeting the SEC, adding more legal complexities for the organization,” they stated.

In a conversation with The Block, Panigirtzoglou noted that while facing additional legal challenges might not be the best scenario for the SEC, it’s a gamble the regulatory body might take. He expressed, “The prospect of another legal skirmish over the approval of a spot bitcoin ETF might not be a situation the SEC is eager to experience again.”

This sentiment follows a recent setback for the SEC, where they were defeated in court by Grayscale Investments. The lawsuit pertained to the SEC’s denial of Grayscale’s request to transition its bitcoin trust into a spot ETF. In October, the court sided with Grayscale, instructing the SEC to re-evaluate the application.

JPMorgan Expects Spot Bitcoin ETF Approvals This Year

Despite the looming possibility of legal challenges, JPMorgan remains confident that the SEC will greenlight several spot bitcoin ETFs in 2023.

In their recent analysis, the bank indicated that asset managers seem to be progressing in their dialogues with the SEC, particularly by addressing major concerns such as potential market manipulation and the safeguarding of client funds. Updated submissions have provided further clarity on these matters.

The report also suggested that the latest surge in bitcoin’s value can be attributed largely to institutional appetite. A notable increase in bitcoin futures positions on the CME, typically a tool favored by institutional players, supports this notion of growing institutional engagement.

Additionally, there’s been a significant uptick in capital flows into major Bitcoin wallets, pointing towards heightened interest.

Bitcoin Price Surges on ETF Optimism

Over the past week, bitcoin’s value has surged by almost 20%, breaching the $34,000 mark. This uptick in the cryptocurrency market coincides with rising anticipation regarding the approval of a spot Bitcoin ETF.

Distinctively, the recent momentum behind Bitcoin seems to be propelled more by institutional investments than by individual retail traders. Analysts noted the absence of a similar increase in Ethereum futures positions as compared to Bitcoin’s, suggesting that the latter is currently the primary focus for institutional investors.

While JPMorgan and various experts are increasingly optimistic about the short-term prospects of ETF approvals, the trajectory remains uncertain. As of now, the industry is left in suspense, awaiting the SEC’s verdict on the growing tally of spot bitcoin ETF submissions. A subsequent denial might reignite legal confrontations, posing significant implications for all parties involved.

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