Despite a prolonged market slowdown, there are promising signs for the Web3 industry. The recent scathing rebuke of the U.S. Securities and Exchange Commission (SEC) by a federal judge validates concerns about regulatory uncertainty in the crypto space. The judge’s use of strong language, describing the SEC’s reasoning as “arbitrary and capricious,” is highly unusual in such cases. As a result, the proposal by Grayscale to convert a bitcoin trust into an exchange-traded fund (ETF) will be sent back to the SEC for further review.

In response, the SEC has decided to delay decisions on all open or refiled spot market bitcoin ETF applications until at least October, presenting various options for the regulatory body. This situation creates opportunities for the entire crypto industry, the Web3 community, the SEC, and the United States to potentially move towards a more collaborative and innovation-friendly future.

However, if the SEC chooses to challenge the federal judge’s conclusions in the Grayscale decision, it could lead to another denial of the application, potentially for different reasons. Yet, this approach could prove problematic, as it is unwise to upset a federal judge, especially if the goal is to suppress the U.S. spot bitcoin ETF market before it even begins. Another denial would result in the case being reviewed by another federal judge, who would consider factors such as whether the SEC’s actions are perceived as an attack on the industry rather than protecting investors or market integrity.

While judges cannot easily force administrative action, they can include language in their decisions that paves the way for future litigation. This could potentially lead to a reversal with added commentary suggesting that plaintiffs may be entitled to damages if they decide to pursue civil lawsuits. Judges could also hint at the possibility of personal liability for individuals involved. Although this may initially seem unlikely, recent instances have shown judges’ willingness to rebuke administrative agencies. Considering the concerns about a potential brain drain of experienced professionals in government, the mere possibility of personal liability for administrative decisions could exacerbate the situation.

However, it is crucial to acknowledge that SEC Chair Gary Gensler and the SEC staff are intelligent and dedicated individuals who prioritize the stability of U.S. markets. While an SEC victory is still possible, it is important to recognize that impeding innovation in this space without clear and convincing evidence supporting investor protection would require significant political capital, which may not be worthwhile in the long run.