Scott Johnsson
@SGJohnsson
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current gp @ vbcap | finance lawyer | fmr @davispolk & IB @barclaysCIB | author - Chambers Global Practice Guide - Banking & Finance (US) | not your lawyer
Joined April 2014
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Gary Gensler: The securities laws are clear
US Bankruptcy Judge:
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@jasonfurman
*Puts unnecessary/incompetent/disasterous crypto regulation in must pass bill on abbreviated timeline to obviate full debate on the merits. Refuses to concede on legitimate concerns and/or revisit the issue later when full debate can be had.*
"Why are you so arrogant!"
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So two things caught my eye from the latest iShares (Blackrock) S-1 amendment:
- They've obtained a CUSIP in prep for a launch
- They may be looking to seed with cash this month (which is earlier than I would've thought, but may be nothing)
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There are emergency meetings being set up at the SEC right now, and it is glorious.
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Grayscale's amended S-3 gives a nice little background on the key sticking point for in-kind creation/redemption. The SEC promulgated rulemaking for digital asset safekeeping. Despite the fact that BDs and exchanges apparently believe they could comply with the rule and offer…
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They might have chosen to do this early so they could have the comment period end before Jan 10, in order to approve everyone at the same time.
Update: Wow. SEC went super early on Franklin. They weren't due for another decision until Jan 1. Notably Franklin is the only issuer who didn't submit an updated S-1 yet. Wonder if that has any impact here.
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If you're angry at Elizabeth Warren, don't spend your time and resources trying to oust her out of her Senate seat in MA. That's not worth the energy. Instead, focus on vulnerable seats that have supported her crusade this past year. A list:
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A lot of discussion/confusion regarding the SEC asking Bitcoin ETF filers to revise their filings lately. It seems helpful if we can clarify these events with context from Grayscale case, and try to figure out what's going on.
First, a little history and status of the law:
1/
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Should go without saying, that a national securities exchange doesn't request acceleration to list securities before a 19b-4 order is even issued unless the SEC specifically told them to. And there's only one reason the SEC would specifically tell them to do that.
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Ok, here me out. If Gensler wants to capture everything as a security, then we can cry / play defense or we can go on offense and start filing private causes of action against the Pokémon company and Taylor swift for unregistered security offerings and really get this fire going.
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Wow, Prometheum's CEO, whose sole credential is heading a special purpose ATS/BD for digital securities, sure seems to have a lot of opinions on unrelated topics like banking principles/stablecoins-or at least his prewritten notes curiously responsive to every Dem question does
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Oops, someone appears to have jumped the gun over at CBOE.
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From
@matthew_sigel
just now in spaces: Heard rumor Blackrock has $2B waiting in the wings to support inflows at launch
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Yes, it’s unheard of. And to remind everyone, S-1s do not NEED to be complete when 19b-4s are approved. Take futures ETFs in 2022. Hashdex didn’t even get initial comments until after its 19b-4 was approved. More than anything, these quick comments demonstrate SEC working to push…
Really this just shows how quickly the SEC is turning these things around. Borderline unheard of to send over a document to the SEC in the morning and get comments back the same day (I think)
If they wanted to delay -- the issuers wouldn't have gotten comments back tonight
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Plus, wouldn't a manipulator have made WAYY more tweeting a rejection?
On TV right on talking about this.. and yes, I think someone prepped a planned tweet and put wrong date, bc the tweet would have made PERFECT sense tomorrow at this time. The language sounds legit SEC-ish IMO vs a crypto knucklehead pulling a prank but I guess we'll see..
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SEC at Binance oral: "The token itself represents the investment contract . . . the token represents the embodiment of an investment contract".
Didn't they say the opposite at CB oral?
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I'll have some thoughts on this. I do think this relates to the ETF, along with CB/Binance enforcement actions. The SEC has been in an untenable position for some time with its position on ETH. This is imo either (i) an attempt to maintain its ambiguity for just a bit longer or…
🚨🚨🚨
ETHEREUM FOUNDATION SUBPOENAED FOR THE FIRST TIME IN ITS HISTORY; ETF REJECTION INEVITABLE?
NFA; read below for my analysis and opinion
The Facts
- The foundation has removed the Warrant Canary from its website, indicating in a Github repository that they have been…
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"Anyway... here's that ETF you wanted that the courts forced us to deliver."
There is a lot of noncompliance in the crypto space. It undermines confidence when so many people have been hurt and all they can do is stand in line in the bankruptcy court. Further, this can make it hard for the good faith actors to compete.
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Best guess on timing (not definitive):
- Monday: “Final” S-1/3 filed
- Wednesday: 19b-4 approval orders issued post-close
- Thursday: Requests for acceleration from issuers
- Friday: Notice of effectiveness filed from SEC
- Tuesday: Trading starts
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Recurring themes I'm seeing in the amendments so far:
- Specifying custodial arrangements in detail
- Mechanics around hard forks
- Valuation/pricing sources and adherence to GAAP
- Risk disclosure around regulatory uncertainty
- Mining is very energy intensive...
[PN] FIDELITY FILED AN UPDATED VERSION OF ITS SPOT BITCOIN ETF S-1 APPLICATION
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Now official.
Ok, SEC is publishing to federal register tomorrow (12/1) the Franklin/Hashdex delays. Quicker turnaround than usual indicates again this is about lining up potential approvals. This puts the comment period ending at 1/5. Ark/21 deadline on 1/10.
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Grayscale mandate dropped. Nothing new here, as expected.
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Ok, SEC is publishing to federal register tomorrow (12/1) the Franklin/Hashdex delays. Quicker turnaround than usual indicates again this is about lining up potential approvals. This puts the comment period ending at 1/5. Ark/21 deadline on 1/10.
They might have chosen to do this early so they could have the comment period end before Jan 10, in order to approve everyone at the same time.
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So Gensler may be a bit cagey on GBTC because there's likely going to be (is?) an ongoing fight behind the scenes about whether Grayscale needs to refile its application (or even whether it needs any further approval at all)...
1/
Here's a short clip of
@kaileyleinz
asking Gensler about $GBTC and other spot
#Bitcoin
ETFs. Mostly non-answers in my opinion but does talk about the disclosure review team. We've had some insight into their process via the amendments from some of these filers in recent days
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Pretty much this. We've known since late November it was going to be Jan 8 - 10. And it will be an approval. There's no more bullets in the SEC's gun.
If the
@SEC
were to deny all spot $BTC ETFs, the applicants would immediately sue and the D.C. Court of Appeals would again rule that the SEC was “arbitrary & capricious.”
The SEC gave every reason they had for denying Grayscale—and lost.
I expect multiple approvals on Jan. 10.
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Part of me hopes Gensler is so stupid as to deny on the basis of ETH being a security, so he can take his place in the Pantheon of history as exhibit A of an out of control regulator, willing to torch a sister agency, national exchange, a billion dollar futures market and half…
Here are my personal thoughts on ETH ETF summarized:
-It's denied, maybe on correlation but could also be on an argument ETH itself is an unregistered security. ETH is too big a moment for them. They have already been working hard to lay the ground on how they might arbitrarily…
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Big Boss (Part V)
Following leaks of a SEC campaign seeking to investigate the security status of ETH, I have some thoughts as to how this may fit into the current SEC landscape
SEC WAGING CAMPAIGN TO CLASSIFY ETHEREUM AS A SECURITY: FORTUNE
Source: DB | Coins: ETH
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It’s comforting to know at least that the SEC going after the giants in the space means the absolute best lawyers in the country will be battling their decidedly lesser peers at the SEC. SEC could’ve gone LBRY route ad infinitum and that would’ve been not great.
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I always prepare for unknown questions outside my area of competence with detailed language coincidentally mirroring those same unknown questions. 🤷♂️
Wow, Prometheum's CEO, whose sole credential is heading a special purpose ATS/BD for digital securities, sure seems to have a lot of opinions on unrelated topics like banking principles/stablecoins-or at least his prewritten notes curiously responsive to every Dem question does
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Out of all the reasons an ETH spot ETF may not be approved (and there are a few), you can rest assured that this won't be one of them since none are currently being set up to offer staking yield. This article is addressing an issue that does not exist right now.
From the WSJ -- Don't count on a ETH ETF. Agree completely with this.
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In every past ETF wave, the SEC did not do this. Why? Because (1) this takes up a ton of SEC resources and (2) makes it MUCH harder to successfully survive judicial scrutiny (and after Grayscale, this is like drawing blood from a stone). If you intend to deny, you just deny.
Things you prob don't do if you going to deny or delay. Hearing similar btw, and why why when we see updated (final) 19b-4s roll in that is sign approval imminent as SEC has been doing back and forth w issuers offline to perfect their 19b-4s vs doing numerous refilings a la S-1s
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Biggest beneficiary of SEC's mandated cash create? Coinbase
See excerpt from the latest Valkyrie S-1 filing just now. But I suspect most of the issuers will be using Coinbase primarily, if not exclusively, to acquire Bitcoin for their holdings.
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There should be a swift response against the members of Congress that signed this letter absent a retraction or other clarification.
🚨🚨🚨
~20% of US Congress signed a letter based on incorrect facts. Elliptic just corrected the facts. Will
@WSJ
& the ~20% of Congress correct their statements now?
@nic__carter
, thank you for demanding truth here, and holding power accountable for misstatements of fact 🙏
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ACKSHUALLY, no. D.C. Circuit made it clear spot and futures products are sufficiently similar across the relevant regulatory factors that they should be considered like products and treated similarly. Therefore... since the SEC said futures satisfied the criteria listed by Better…
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Reminder: the SEC in November delayed Franklin/Hashdex applications a full 24 BDs before their second deadline (prior record for any BTC app since 2018 was just 11 BDs (NYDIG)). The only rationale for such a move was to align comment periods for potential simultaneous approval.
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Bad faith conduct here.
Better Markets now dropping their comment on why the SEC should deny.
Arguing that the
@Grayscale
court decision "should not compel the SEC to deviate from its previous well-grounded decision disapproving multiple spot Bitcoin-based ETPs"
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Why is the SEC now set to greenlight Ether-futures? What's different now or is anything? Does it have anything to do with the fact that the SEC has never brought an enforcement action labeling ETH a security?
First, some history
1/
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Coinbase gets the biggest guns when their back is against the wall - Two Band 1 firms in WLRK and SullCrom with nearly a dozen signed partners led by Savitt (co-chair litigation at WLRK). For the outsider… elite of the elite.
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Sorry kid, that holographic Charizard is still a security since we can’t know if you bought it for your own consumption or as an investment.
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New BlackRock S-1 filing dropped. We've got some APs now.
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This was imo the primary reason the SEC held off as long as it could on BTC spot. Once banks, tradfi, etc start developing a crypto business with real cash flows, they become far less amenable to BS rules and regs that prevent them from expanding those cash flows.
US banks, left off key bitcoin ETF roles, are pushing SEC to tweak guidance around holding digital assets. A bank trade gp coalition sent SEC letter asking them exclude ETFs from broad crypto umbrella. They want a piece of the action. I don't blame them, it isn't fair.…
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Best guess order of operations from here:
1. 4pm - 4:30pm : SEC uploads 19b-4 orders to SRO rulemaking section of website (approval orders). These are now issued and we clear the first hurdle (the 19b-4 process).
2. 4:30pm - 5:30pm (close of normal business hours for EDGAR): SEC…
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Still no refiled 19b-4 for Grayscale even after the mandate today, instead relying on the original from 2021. If this remains, have to think Grayscale/SEC had the convo and SEC is ok with no refile (otherwise this is a big risk for Grayscale to take imo). Think portends good news
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Why do I sense a narrative shift about to happen with this admin? Feels like once the ETF is approved we're going to get fed a BS line about "actually this admin is pro-crypto, they just want to clean up the bad actors... did anyone other admin approve the ETF?"
Binance Founder Changpeng Zhao Agrees to Step Down, Plead Guilty -- WSJ: BBG
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This goes to the heart of the SEC's dilemma re: ETH and the consequences of a decision to roll back the clock and designate ETH as a security. Basically blow up a billion+ $ futures market that's relied for years on the agency's implicit position that ETH is a commodity.
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You think I’m joking, but there’s no fundamental way to distinguish in a neutral way.
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Reminder also for everyone in the back:
The SEC allowed these futures ETFs to go effective AND accelerated their effectiveness, which required the SEC to have "due regard to the public interest and the protection of investors". How can you have due regard here while believing ETH…
Yet the SEC approved ETH Futures ETF in October of 2023.
So Gensler needs to be under oath, explaining why he approved something that he believes was a security and under investigation.
Can’t have it both ways.
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Elliott nailed Grayscale. He’s one of the few impartial subject matter experts in the space. All signal no noise.
I went into SEC v. Coinbase hearing thinking $COIN would, on this motion, win dismissal of SEC's primary claims (concerning trading) but maybe not staking and broker claims. I left thinking COIN would win full dismissal. Snippet below and full note here:
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This indicates to me that the SEC is likely going to approve/deny on the basis of correlation (which shouldn’t be a surprise). Why bring in Coinbase to discuss their correlation analysis before the actual issuers? Think it highlights as well, that IF the SEC were contemplating…
SEC MEETING - Memorandum from the Division of Trading and Markets regarding a March 6, 2024 meeting with representatives of Coinbase (Grayscale Ethereum Trust)
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Wow. Big move here. Solidifies GBTC going in first wave imo.
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@MetaLawMan
@coinbase
Also:
This must be so devastating to be in for an initial hearing and off-the-bat the judge is jumping in on Coinbase’s argument to further expound upon how ridiculous the SEC sounds.
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@fintechfrank
@michaelbatnick
This is equity valuation, which comes behind debt in the cap structure, of which MSTR has a fair amount. The metric you want to look at here is enterprise value, which would show there is nothing unusually interesting happening.
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Have to admit, I'm surprised staking is being included in the applications. Thought maybe it would be a one-off with Ark/21
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Just skimmed changed pages on this. If these are actually responsive to SEC comments, it doesn't look like the agency is putting up any unnecessary roadblocks via disclosure review. At least currently and based on this amendment.
ARK has just filed an updated version of its spot bitcoin ETF prospectus. The SEC emailed issuers a few wks ago with comments/qs about their S-1 that they wanted addressed so is very poss ARK has answered all that in this filing. We looking thru it now..
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I wonder how a certain cohort of politicians feel now, after trying to kill off CB, including a SEC enforcement to the jugular, the stock is up 450% on the year… and this $45 billion company is now in an existential position to make sure that cohort is not re-elected next year.
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Assume, for a moment, SEC denies ETH spot on May 23rd. Assume further that SEC bases that denial on correlation concerns. The big question will be how does the SEC thread the needle a week later on May 30.
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Looks like we've got some confirmation of (1) without a hard timeline (so almost certainly decided alongside the other open apps). The most likely outcome.
My guess is Grayscale is in one of two positions:
(1) They've received assurances that they will receive a new order within [x] days and/or alongside the open apps
(2) They have not received assurances and have demanded a new order by [date] or they will pursue judicial remedy
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If the SEC wanted to max delay, they would’ve waited until post 19b-4 approval to start disclosure review (see BTC futures ETF in 2022). They chose not to here. My guess is a week minimum and two months on the high end. And likely closer to the minimum.
Let's assume the SEC approves one or more Bitcoin ETFs on January 08th.
How long will it take until the average Joe can trade them through their broker?
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Reminder that the first commodity ETF - SPDR Gold Trust - was approved by the SEC WITHOUT a surveillance sharing agreement with the the underlying spot market, instead relying on SSA with futures. Exactly what GBTC has been attempting for years.
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The Road Ahead: A View on ETH Spot
This is intended to be a deep dive into the current landscape for crypto spot ETFs generally with emphasis on ETH. Will do this in 4 parts for ease of reference.
1 - General Roadmap
2 - Threshold Issue
3 - BTC Spot Approval
4 - ETH Analysis
🧵
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As a preface to this thread, I will just say the SEC is absolutely cowardly in this order.
A lot to digest in this approval order. I'll be putting together a thread later. Some interesting arguments from the SEC in threading the needle here.
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GBTC was disapproved because "NYSE ARCA has not met its burden ... that its proposal is consistent with the requirements of [6(b)(5)], which requires ... [it] be designed to prevent fraudulent and manipulative acts ... and to protect investors and the public interest"
🧵
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First couple paragraphs set a heavy tone. Wow.
Today,
@coinbase
filed our brief asking the Court to dismiss the SEC’s case against us. Our core argument is simple — we do not offer "investment contracts" as that term has been construed by decades of Supreme Court and other binding precedent. 1/3
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Similar language to the Blackrock amendment re: seeding. Perhaps not too surprising given both issuers are represented by the same lawyers at Clifford Chance. Except here, instead of seeding with cash like iShares, Vaneck suggests they'll seed with bitcoin.
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@nic__carter
While there is a ton of smoke here, we should recognize that he has a huge incentive to cast blame anywhere else but on him given his image/history.
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I echo this sentiment.
@Grayscale
doubtlessly spent many millions of dollars taking the SEC to the mat in the DC Circuit and obtaining a rebuke of such proportions that I believe reverberates beyond simply discussions of ETFs at the commission. We all benefit enormously.
It took over ten years, but we’re finally on the verge of having spot bitcoin ETFs approved in the USA.
(Yes, we are.)
Many deserve credit for this milestone, but chiefly
@Grayscale
and its lawyers, who had the guts to fight this out in court and won.
Let’s fight more in 2024.
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Interesting, adding a staking component (in brackets):
HERE WE GO AGAIN: ARK/21Shares has just filed an amended S-1 for their spot Ether ETF, looks like they updated to be only cash creations and some other things that bring it in line w the recently approved spot btc etf prospectus..
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Some interesting tidbits from the Binance TRO hearing. When discussing with SEC counsel, Judge Amy Berman Jackson immediately seemed to understand the crux of D argument re: investment contract, and without reading too much into, seemed at least somewhat sympathetic.
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So is this the SEC getting its ducks in a row to approve first a spot ETP with spot exchange SSA and mitigate an eventual loss in the Grayscale case? I don't think we can be sure, but their actions are consistent with that approach.
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Rehabilitation tour is ongoing it seems. If you hire her or White & Case, imo, you're part of the problem.
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It's easy to write-off a spot ETH ETF based on initial failure of the futures ETF. But there's a compelling argument to be made that a yield-bearing ETF would shortly follow and offer an attractive complement to spot BTC exposure. And competing digital assets are 3+ years away.
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Big hand tip imo deferring to doing things "how courts interpret our authorities". Shouldn't be surprising, but it's a recognition of the sea change I haven't seen him mention before.
"We also had a court case... and so we do things according to our authorities and how courts interpret our authorities and that's what we'll do here"--
@GaryGensler
After
@kaileyleinz
asked him about
#Bitcoin
ETF filings and the repeated SEC meetings with potential issuers
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Looks like BCH, LTC and DOGE futures go live April 1 on Coinbase
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Imagine hiring a lawyer that works for an employer that fosters AND EXCUSES this behavior... until a judge has to step in. And even then the SEC's General Counsel's office commits the SAME SIN. Spare me until those lawyers resign in disgrace as well.
they were told they'd be fired if they didn't resign
now SEC lawyers know that Gary will hang them out to dry when the backfire from his aggressive, disingenuous approach to the law gets out of hand
disgusting behavior all around
@SGJohnsson
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I'm hoping they just retweet the fake post from last night and sit silent for like an hour before uploading the 19b-4 orders.
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If theres a hypothetical approval this week, there's probably MINIMUM a month (and probably a couple) before any ETF actually launches. S-1s still under review and no real hard deadline for that process. Though I consider it more a formality at that stage. Would be a wild period.
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This must be so devastating to be in for an initial hearing and off-the-bat the judge is jumping in on Coinbase’s argument to further expound upon how ridiculous the SEC sounds.
In the interest of transparency, here is the transcript from our hearing yesterday in the SDNY case brought against us by the SEC. We appreciate the Court’s careful consideration.
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Another thing I'll say, from a procedural standpoint. It's incredibly helpful that we have an issuer providing a FULL replication using the SEC methodology. Including 1h, 5m and 1m intervals with the most up to date sample period (even if it's showing correlation below approved…
Most accurate illustration of current ETH spot/CME correlation I've seen thus far from an issuer. Matches up closely with what we calculated (though different sample periods). Bitwise on the left. This is strong.
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Similar team to Coinbase. Led by Savitt at WLRK (elite of the elite). Wouldn't surprise me if this was done with some level of consultation with CB to head off the SEC and help set up the circuit split for their case.
Preemptive Consensys suit in Texas is next level strategy I love to see.
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For one, as a technical matter, they didn’t even submit the comment to the only two apps (Franklin/Hashdex) that were accepting comments as of yesterday. They simply copy/pasted the apps from their August letter and forgot to include the only relevant ones that would be required…
I’m not really worried about the Better Markets letter. For many reasons, some which I’ll get into later.
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Going on offense. Might just be the last district in the US Gary would like to be arguing his case. Very strategic litigation-esque. Godspeed soldier.
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@NateGeraci
Ha, I was reading these earlier today. Bizarre how much the recent comments say the exact same thing.
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I was very curious to see when the next round of amendments would occur. Think it's a good sign that SEC continues to iterate in the normal course. A couple points of interest:
ARK has just updated its S-1 again, amendment
#3
. Semi-shocker to be honest but in a good way. The more updates to these documents the better, shows them getting this bad boys in shape for SEC approval.
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Preemptive Consensys suit in Texas is next level strategy I love to see.
[ ZOOMER ]
CONSENSYS SUES SEC, SAYS SEC IS SEEKING TO DECLARE ETH A SECURITY: FILING
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This was filed just now (not July) and references the filing from just earlier today. People reading too much into this and impact. CBOE just was supposed to wait. If you're angry at someone, direct it at the CBOE.
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I always prepare for unknown questions outside my area of competence with detailed language coincidentally mirroring those same unknown questions. 🤷♂️
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This is irrelevant at this stage of the game. If you want to have a coherent theory for why SEC would deny spot, the DC Cir has already laid out the rules.
You must frame your argument through the "significant markets" test and explain why this concern would NOT apply to futures…
Spot ETF:
Maybe the SEC is concerned with a single (offshore) exchange dominating the spot market and is simply waiting till that changes.
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A lot to digest in this approval order. I'll be putting together a thread later. Some interesting arguments from the SEC in threading the needle here.
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"I'm not sure I've heard the SEC say before that the token represents the investment contract..." - Judge Berman "Now you're saying it's basically merged"
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Occasionally, life brings you back down to earth and reflects upon your purpose. Sometimes it’s because something is ending. But for me, now, a beginning. Very thankful in this moment.
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80 bps fee. We need an official Bloomberg table
@JSeyff
!
UPDATE:
@ValkyrieFunds
just filed another amended S-1 for their Bitcoin ETF. Anddddd they have named Jane Street and Cantor Fitzgerald as their APs. Floodgates opening.
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We're getting to the point people getting mad that
@JSeyff
and
@EricBalchunas
90% odds aren't high enough, when for most of this year people were yelling at them for having it too high. And I'm here for it. Legends.
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For those waiting, the SEC has until midnight ET to file its petition for rehearing
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So is Grayscale going to amend their now 2-year old 19b-4 filing to remove references to in-kind creation? Their lawyers probably don't love the idea of touching it for any reason following the DC Cir ruling. Might be the reason they've been pushing so hard in SEC meetings.
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The wiggle room for the SEC to further deny spot BTC ETF is MUCH smaller than I think many realize. Possible? I suppose. But people thinking they can just reimagine a completely new and unrelated theory have not read the Grayscale ruling closely enough.
And in the GBTC disapproval order the SEC states “As the Commission has explained, an exchange that lists bitcoin-based ETPs can meet its obligations under [the Exchange Act] by demonstrating that the exchange has a [SSA] with a regulated market of significant size…”
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This sets up approval open period sometime after Jan 2 and before Jan 10
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