Major financial institutions including BlackRock, Fidelity and VanEck are in the race to list the first spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States.
While the U.S. Securities and Exchange Commission (SEC) first approved a bitcoin-linked futures ETF in October 2021, the current application applies to spot bitcoin ETFs. Following Grayscale’s recent legal victory in the SEC’s review of its spot bitcoin ETF proposal, many now believe the investment fund’s approval is more likely.
The interest of BlackRock, the world’s largest asset manager with more than $8 trillion in assets under management, has prompted several other institutions to reapply for a spot bitcoin ETF.
Due to the SEC’s reservations about spot derivative ETFs, most asset managers have either withdrawn their spot bitcoin ETF filings or faced rejection. The following are the main Bitcoin ETF applicants:
- black stone: BlackRock applied for a spot bitcoin ETF on June 15, with Coinbase serving as the cryptocurrency custodian and spot market data provider, and BNY Mellon serving as its cash custodian.The document shocked the cryptocurrency and traditional financial circles, and the company’s CEO Larry Fink had previously is called BTC is the money laundering index. On July 15, the SEC officially accepted BlackRock’s spot bitcoin ETF application for review.
- wisdom Tree: The New York-based asset manager first applied for a spot bitcoin ETF in the US on Dec. 8, 2021, but was rejected by the SEC in 2022. The agency claimed the ETF was deficient in investor protection; however, WisdomTree refiled with the SEC on July 19 as BlackRock joined the spot Bitcoin ETF race.
- Valkyrie Investment: Asset manager Valkyrie submitted its first spot bitcoin ETF application in January 2021, but like many other asset managers, it was rejected by the SEC. However, following renewed enthusiasm for a spot bitcoin ETF, Valkyrie resubmitted its application on June 21. The ETF will be referenced to the Chicago Mercantile Exchange (CME) bitcoin reference price and traded on NYSE Arca, with Xapo acting as the cryptocurrency custodian.
- Ark Investment: ARK submitted an application for the ARK 21Shares Bitcoin ETF in June 2021. ARK Invest is offering the fund in partnership with Swiss ETF provider 21Shares and will launch on the Chicago Board Options Exchange (Cboe) BZX exchange under the ticker symbol BZX ARKB if approved.
- Van Eck: VanEck was one of the earliest Bitcoin ETF applicants, first submitting an application in 2018. The asset manager withdrew its application in September 2019 and made a second attempt with the SEC in December 2020, and the trust’s shares will trade on the Chicago Board Options Exchange BZX Exchange. The company filed a new application in July 2023.
- Loyalty/Wise Origin: Fidelity Investments first applied for a spot Bitcoin ETF in 2021 and reapplied for its Wise Origin Bitcoin Trust on July 19, 2023. The Wise Origin Bitcoin Trust will be managed by Fidelity Service Company, while Fidelity Digital Assets will act as the BTC custodian.
- Invesco Galaxy Bitcoin ETF: Invesco first filed a joint application with Galaxy Digital for the Invesco Galaxy Bitcoin ETF on September 22, 2021. The joint venture resubmitted its application in July. The United Bitcoin ETF will be “backed in kind” by Bitcoin, with Invesco Capital Management as sponsor.
- Bitwise: Bitwise first applied for a spot bitcoin ETF in October 2021, but was rejected by the SEC. Asset managers resubmit their applications in August 2023.
- Universal X: Fund manager GlobalX joined several other financial giants in the ETF race in 2021 when it applied for a spot bitcoin ETF.fund manager re-archive It filed in August 2023, becoming the ninth applicant. The company named Coinbase as its monitoring sharing partner.
Given Grayscale’s recent legal wins and wave of new applications, Bloomberg’s ETF analysts raised the expected chance of approval for the spot bitcoin ETF from 65% to 75%.
new: @JSeyff I put my odds on a spot bitcoin ETF launching this year to 75% (95% by the end of ’24). While we factored Grayscale’s victory into our previous 65% odds, the ruling was more unanimous and decisive than expected and left “very little leeway” for the SEC @NYCStein pic.twitter.com/IyEGmWjuHa
— Eric Balchunas (@EricBalchunas) August 30, 2023
As expected, the SEC delayed decisions on all seven applicants. Analysts have predicted that the U.S. Securities and Exchange Commission (SEC) may not make a decision on ETFs until early 2024 as the final deadline approaches (listed below).
John Glover, chief investment officer at crypto lending platform Ledn, told Cointelegraph that ARK 21Shares’ ruling, scheduled for Jan. 10, will be the first real indicator of whether the SEC is ready to start approving such applications. There is a deadline and a decision needs to be made somehow. “
Why has the SEC rejected spot bitcoin ETFs in the past?
In its earlier rejection of VanEck’s spot bitcoin ETF, the SEC claimed that the bitcoin market was not large enough or mature enough to sustain ETF market demand. The committee also said that price volatility and insufficient regulation of transactions could make the market prone to fraud and manipulation.
However, with BlackRock on board, market experts are beginning to believe that a spot bitcoin ETF has a good chance of being approved.
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One of the main factors holding back spot ETFs from being approved is the nature of the fund.
An important distinction is that futures ETFs are based on futures contracts rather than digital assets themselves. The futures market is already heavily regulated to prevent market manipulation, making it easier for the SEC to approve such ETFs.
At the heart of the rejection of these spot ETFs is the issuer’s requirement to include an “oversight sharing agreement” with a sufficiently large and regulated bitcoin-related market. Such agreements are critical to ensuring that the SEC can conduct a thorough investigation in the event of any market violation.
A Bitfinex Alpha analyst told Cointelegraph that a key concern behind the rejection of a spot bitcoin ETF is the ability of regulators to track and consistently ensure the safety and custody of assets. For this to happen, however, the U.S. needs more regulatory and legal infrastructure before “the SEC or other relevant parties feel comfortable allowing ETF providers to deal with this.”
“If not, then the whole purpose of the ETF, which is to circumvent transactions with digital asset wallets or cryptocurrency exchanges, defeats the purpose. Therefore, it is unfair to say that the spot bitcoin ETF does not have manipulation problems in the eyes of the SEC. Since 2018 The rejection of the ProShares Bitcoin ETF since 2011 clarifies this. Another concern documented by the document is the ability of the Bitcoin market to handle the volume brought in by the introduction of a spot ETF,” the analyst added.
The SEC is primarily concerned with the robustness of trading venues. The regulator oversees futures exchanges such as the CME and Cboe, and any futures ETFs will be limited to trading on those regulated venues. There is no spot exchange regulated by the SEC.
However, not everyone agrees with the SEC’s assumptions about the vulnerability of the spot crypto ETF market. James Koutoulas, founder of futures-focused hedge fund Typhon, told Cointelegraph:
“I can attest that crypto futures are far inferior to spot in terms of tracking error. It is delusional to think that US regulators can provide sufficient “surveillance” against market manipulation in 12-figure markets around the world. So, honestly, this Probably comes down to putting the blame on the CFTC, not retaining it. Given that the SEC has an ‘investor protection’ mandate.”
He added that by continuing to reject the simplest of products like BTC ETFs, “the SEC continues to drive demand for offshore cryptocurrencies and unregulated players. While a BTC ETF may not be perfect, it’s better than family and friends with Gensler.” SBF (Sam Bankman-Fried) is much safer buying BTC at FTX.”
Futures ETFs have long been seen as more popular by regulators, and a decision on spot ETFs is a matter of when, not if, according to Richard Gardener, chief executive of technology infrastructure company Modulus. The problem occurred.
He told Cointelegraph that a spot BTC ETF is coming, sooner rather than later, as evidenced by substantial investments from major players such as BlackRock and Fidelity. As long as major players are involved, the industry is considered viable in the long run despite short-term setbacks. If the SEC continues to refuse to act, politicians will be forced to act and develop their own solutions to the cryptocurrency woes. “
Ethereum futures ETF has a better chance of being approved
While cryptocurrency enthusiasts would prefer to see spot ETFs, which would legitimize cryptocurrencies as an asset class, U.S. regulators seem more likely to favor futures ETFs.
Bloomberg analysts predict that the probability of Ethereum (ETH) futures derivative ETF being approved exceeds 90%, and nearly a dozen institutions have already lined up for approval.
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Reports in the financial media suggest that the SEC is likely to approve an ETF based on ethereum futures as early as October.
This was no surprise to us, we had said they would approve Ethereum futures early in the game. Nice to be verified. Now what does this mean for the spot? Hard to say other than that this shows that their views/policies/tolerance can change. https://t.co/JXCxNUpj2U
— Eric Balchunas (@EricBalchunas) August 17, 2023
Ken Timsit, managing director of blockchain startup accelerator Cronos Labs, told Cointelegraph, “The argument in favor of futures is that futures will allow investors to signal about the market’s expected price evolution, which in turn will help curb Bitcoin’s volatility. .” Bitcoin and Ethereum prices have offset the large price swings we’ve seen recently. “
Doug Schwenk, CEO of Digital Asset Research, told Cointelegraph, “Short-term psychological effects are likely to lift the cryptocurrency market, reaffirming regulators’ openness to the evolving listing space and continued hope for the elusive spot ETF .” ”
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