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

The possibility of SEC approval for a spot bitcoin exchange-traded fund (ETF) has generated growing optimism in recent weeks, with some analysts predicting approvals could come within months. Potential legal battles loom if the SEC ultimately rejects any spot Bitcoin ETF applications, however.

According to a Wednesday report from JPMorgan analysts led by Nikolaos Panigirtzoglou, the SEC could face lawsuits from ETF applicants if it declines to approve any spot bitcoin ETFs. Though the analysts view an outright rejection as unlikely, they acknowledge it remains a possibility.

The Path Forward for Bitcoin ETFs

“Any rejection could trigger lawsuits against SEC creating more legal troubles for the agency,” the analysts wrote in the report.

Panigirtzoglou told The Block that while new legal challenges would not be ideal for the SEC, it’s a risk the agency may be willing to take.

The only Reason why i am positive on Bitcoin ETF from Blackrock because the Big Guys don’t want to lose so they will do everything to make it work

— 𝒩𝑜𝓉𝑜𝓇𝒾𝑜𝓊𝓈✮🥷🏾 (@Al_ameenX) October 26, 2023

“We believe that a new legal battle on the issue of spot bitcoin ETF approval is not something that the SEC would be willing to face again,” he commented.

This comes after the SEC lost a court case filed against it by Grayscale Investments, regarding the rejection of Grayscale’s application to convert its bitcoin trust into a spot ETF. The court ruled in favor of Grayscale in October, mandating that the SEC reconsider the application.

JPMorgan Expects Spot Bitcoin ETF Approvals This Year

Despite potential legal hurdles, JPMorgan reiterated that the SEC will likely approve multiple spot bitcoin ETFs within 2023.

In a report last week, the bank said asset managers appear to be making headway with the SEC by addressing concerns around market manipulation and custody of customer funds. Amended filings have helped clarify these issues.

According to the report, the recent bitcoin rally was most likely fueled by institutional demand. The recent spike in bitcoin futures positions on the CME, typically used by institutional investors, could be seen as evidence of rising institutional interest.

Meanwhile, inflows into larger Bitcoin wallets have also surged recently.

Bitcoin Price Surges on ETF Optimism

The bitcoin price has climbed nearly 20% over the past seven days, reaching above $34,000. The crypto market rally comes alongside growing expectations of an imminent spot Bitcoin ETF approval.

In contrast to previous rallies this cycle, the latest Bitcoin surge appears driven by institutional flows rather than retail speculation. The analysts pointed out that Ethereum futures positions have not seen the same spike as Bitcoin futures, indicating Bitcoin is currently attracting greater institutional interest.

While JPMorgan and other analysts sound increasingly confident about near-term ETF approvals, the path forward is still unclear. For now, industry participants are left to speculate how the SEC will respond to a growing list of spot bitcoin ETF applications. Another rejection could spur fresh legal battles with high stakes for both sides.