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“The Great Bitcoin Accumulation Has Begun” – Understanding Why Bitcoin ETFs are a Big Deal

Published June 27, 2023 1:00 PM
Teuta Franjkovic
Published June 27, 2023 1:00 PM
Key Takeaways
  • In the U.S., several aspirants have submitted proposals for an ETF that would provide exposure to Bitcoin
  • Every application for a spot market Bitcoin ETF has been turned down so far by the SEC
  • Cameron Winklevoss, warned the “window” to buy Bitcoin before the ETF “floodgates” open is “closing fast

A spot Bitcoin Exchange-Traded funds (ETFs) have evolved into something of a big deal for the cryptocurrency world ever since the initial application for a U.S. Bitcoin exchange-traded fund was submitted in 2013.

A Bitcoin ETF tracks the value of Bitcoin as its underlying asset. The complexity of exchanges, digital wallets, and private keys, according to proponents of a Bitcoin ETF, remains a formidable barrier to entry for novices to the crypto space. These investors may obtain exposure to Bitcoin through a Bitcoin ETF without actually holding any of the cryptocurrency themselves.

Around the world, Bitcoin ETFs have shown up in countries including Canada, Brazil, and Dubai where they are really considered a big deal. The ProShares Bitcoin futures ETF also debuted on the New York Stock Exchange in October 2021.

The U.S. Securities and Exchange Commission (SEC), which provides direct exposure to Bitcoin as opposed to futures contracts, has, to date, denied every application for a spot Bitcoin ETF. The possibility of market manipulation among cryptocurrency traders has been mentioned by the SEC on numerous occasions as one of their worries.

It All Started With Gemini

It has taken a while for there to even start talking about a Bitcoin ETF. The SEC has been holding up the creation of a trust that operates like a Bitcoin ETF since the Winklevoss twins initially proposed it in 2013. Over the past few years, it has frequently postponed making decisions on a number of big deal Bitcoin ETFs, leading companies like VanEck to withdraw their applications out of concern that the SEC will reject them.

The SEC formally denied the Winklevoss twins’ application for a Bitcoin ETF in July. The Securities and Exchange Commission indicated that, in a nutshell, it does not think that investors would be sufficiently safeguarded from fraud and manipulation in the young market.

According to the SEC, “The Commission thus cannot, on the record before it, conclude that bitcoin markets are uniquely resistant to manipulation.” in the 92-page paper outlining how the decision was made.

Many Have Failed – Or Gave Up

There is a long series of unsuccessful spot Bitcoin ETF applications, and the SEC has so far, as was already mentioned, denied each and every one of them. Some of the biggest companies tried but were still rejected. Here are some of the biggest SEC rejections:

  • Global X

In July 2021, Global X Digital Assets submitted an application to the SEC. The proposed Global X Bitcoin Trust would be administered by the Bank of New York Mellon and traded on the Cboe BZX platform.

The SEC rejected the spot ETF proposals from Global X and NYDIG in March 2021.

  • Kryptoin

In October 2019,  Delaware-based Kryptoin submitted their initial application for a Bitcoin ETF, with the proposed Kryptoin Bitcoin ETF Trust to be listed on NYSE Arca. In April 2021, the financial services firm attempted an additional Bitcoin ETF with a new plan that called for the Trust to be listed on Cboe’s BZX Exchange. The service providers that would help with the launch of its ETF were included in its updated filing, including the cryptocurrency exchange Gemini, which would act as custodians for the Trust’s Bitcoin holdings.

After several push-backs, the SEC rejected Kryptoin’s application  at the end of 2021.

  • Fidelity/Wise Origin

There was a spike in applications for Bitcoin ETFs in March 2021, including one from Fidelity’s Wise Origin Bitcoin Trust that seemed like a big deal. According to the application for The Wise Origin Bitcoin Trust, Fidelity Service Company Inc. would act as the trustee and Fidelity Digital Assets would be the custodian of the Bitcoin used to back the ETF.

The SEC’s worries about market manipulation, according to Cboe Global Markets, have been “sufficiently mitigated” as a result of growing investor participation and institutional adoption of the cryptocurrency, which have “facilitated the maturation of the Bitcoin trading ecosystem,” according to a proposal to list Fidelity’s Bitcoin ETF that seemed like a big deal and was submitted in May 2021.

Fidelity’s ETF was rejected in January 2022, but now it is striking again.

  • Grayscale

Grayscale, a manager of cryptocurrency investment funds, has made no secret of its goal to turn its GBTC Bitcoin trust into a full-fledged Bitcoin spot ETF. The trust currently oversees well over 600,000 BTC, which are worth close to $20 billion at the current exchange rate. It started the procedure by formally filing a conversion application in October 2021.

The SEC rejected Grayscale’s application in June 2022, claiming that the business had not taken sufficient steps to guard against potential fraud. Immediately after, Grayscale started legal action against the regulator, calling its justification for rejection “illogical.”

  • VanEck

One of the first companies to apply for a Bitcoin ETF was VanEck. The VanEck SolidX Bitcoin Trust, created in collaboration with SolidX, was their first attempt at a Bitcoin ETF, and it debuted back in 2018.

The VanEck Bitcoin Trust application was submitted to the SEC in December 2020, with shares of the trust scheduled to trade on the Cboe BZX Exchange. Although the application was withdrawn in September 2019, VanEck made a second attempt to launch a Bitcoin ETF.

Before rejecting VanEck’s second Bitcoin ETF filing in November 2021, the SEC continually postponed making a decision on it.

A third application was submitted in the middle of 2022, and the SEC again hesitated before denying it in March 2023.

Despite SEC’s Crackdown on Crypto – Bitcoin Seems To Be Covered

Since its inception in 2009, Bitcoin has been synonymous with cryptocurrencies, making it a constant topic of conversation. Throughout the regulatory mess the US Securities and Exchange Commission produced, Bitcoin has also managed to avoid being examined.

According to SEC Chair Gary Gensler in an interview with CNBC, unlike other cryptocurrencies that past SEC leaders had evaluated, Bitcoin is a commodity. Gensler stated:  “Some, like Bitcoin, and that’s the only one, Jim, I’m going to say because I’m not going to talk about any of these tokens [that] my predecessors and others have said [are] a commodity.”

This may be a reference to a lecture by former SEC Director William Hinman, who used ether as the foundation for his defense of the securities vs. commodities debate.

Gary Gensler was observed at a presentation identifying a few cryptocurrencies that he deemed to be “not securities” even before being appointed as the SEC Chair. In his presentation, Gensler named four cryptocurrencies, including Bitcoin and Bitcoin Cash.

The SEC recently announced a flurry of allegations against Coinbase and Binance, two of the biggest cryptocurrency exchanges in the world, launching a legal conflict that will help shape the future of cryptocurrencies. Although there are significant differences between the two lawsuits, at their core, both Coinbase and Binance are charged with failing to register their exchanges with the SEC.

Both of these businesses have made up their minds to contest the accusations leveled against them and are getting ready for a lengthy battle.

BlackRock Fever and Why It’s Important?

BlackRock stunned the financial community on June 15 when it filed for the iShares Bitcoin Trust, becoming the most notable filer for a spot Bitcoin ETF after the US Securities and Exchange Commission had rejected the approach for years. The timing of BlackRock’s relationship with Coinbase and the unexpected filing, which followed the SEC’s action against Coinbase (COIN) and Binance, is puzzling.

BlackRock, the biggest asset manager in the world, would lend much-needed respectability to the Bitcoin market right now. An iShares spot Bitcoin ETF would be a welcome upgrade in light of the SEC’s crackdown on the high-fee, unreliable Bitcoin ETFs now on the market. If this is the case, it raises the question of whether investors need to purchase this fund when it does so. Bitcoin’s future is uncertain and it is very volatile. Investors cannot rely on a fundamental value, hence this factor should take precedence over all others, including fund structure.

Aside from its potential as an investment, it’s important to comprehend how a spot Bitcoin ETF would compare to other products offered in the US. Grantor trusts, futures-based ETFs, and equity funds with exposure to Bitcoin are the three types of funds that make up the Bitcoin ETF market at the moment. The BlackRock-proposed spot Bitcoin ETF would add a fourth bucket because it doesn’t fit in the existing three.

What Does BTC Spot ETF Mean For the Crypto Market?

The co-founder of cryptocurrency exchange Gemini, Cameron Winklevoss, declared on June 21 that he thinks “The Great Accumulation” of Bitcoin between institutions and retail investors has started.

He said that purchasing Bitcoin before the ETFs become public is comparable to buying stock prior to an IPO and that the “floodgates” for purchasing Bitcoin are “closing fast.”

Some observers believe that the investing behemoth BlackRock’s recent application for a Bitcoin spot ETF with the US Securities Exchange Commission, which was followed by those of Fidelity, Invesco, Wisdom Tree, and Valkyrie, is what caused Bitcoin’s 19% price increase to $30,240 since June 16.

In his own piece, MicroStrategy Executive Chairman Michael Saylor added his two cents, speculating that growing institutional demand may eventually force out retail investors.

The U.S. Securities and Exchange Commission (SEC) approved the first leveraged Bitcoin futures exchange-traded fund (ETF) last week. The Volatility Shares 2x Bitcoin Strategy ETF (BITX) made its debut on the Chicago Board Options (CBOE) BZX Exchange on Tuesday, June 27.

According to the BITX SEC filing, the company “seeks investment results that correspond to two times (2x) the return of the Chicago Mercantile Exchange (CME) Bitcoin Futures Daily Roll Index.”

Amid reports of potential spot Bitcoin exchange-traded funds and other well-known companies entering the digital currency market, the price of Bitcoin has risen above $30,000. Despite an increase of more than 80% in 2023, the price of Bitcoin is still more than 50% behind its record high reached in November 2021.