On June 15, when BlackRock applied for a spot Bitcoin ETF to make it easier for investors to gain exposure to Bitcoin, little did we know that it would be the first of a flurry of applications. At the time of writing, a long list of firms such as ARK Invest, Fidelity, Invesco, and WisdomTree have joined the queue.
Last week, the Securities and Exchange Commission confirmed it would not relitigate Grayscale Investments’ own spot Bitcoin ETF application. The DC Circuit Court of Appeals had overturned Grayscale’s rejection by the SEC in August, after the regulator swatted down its original attempt on June 28. Now the path is set for Grayscale and others to begin launching their exchange-traded funds, so what happens next?
The SEC initially decided to reject Grayscale’s application to convert its Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin exchange-traded-fund on the basis that it could not prevent market manipulation. However, a court overturned the measure, arguing the SEC had previously approved a similar surveillance agreement for a Bitcoin futures-based ETF.
The SEC’s decision not to appeal this decision likely paves the way for the agency to look again at Grayscale’s application. However, the SEC approval process for spot bitcoin ETFs is still ongoing. The regulator has a complex role in evaluating any proposed ETF to ensure it meets standards around pricing, liquidity, custody and potential for manipulation or fraud.
While the decision not to appeal the Grayscale decision is encouraging, each spot Bitcoin ETF proposal will still need to be thoroughly reviewed by the SEC. According to a Bloomberg report, the agency is not planning to appeal any other cases, according to a person familiar with the matter. Setting the stage for what could be a relatively easy rollout of several ETFs.
The mood music appears right, too. James Seyffart , a Bloomberg analyst, called Grayscale’s GBTC conversion a “done deal,” believing it was virtually certain it would now go ahead. On October 15, Grayscale told Eleanor Terrett, a journalist from Fox Business, that they remained “operationally ready” to make the change.
Other applications look to be making progress, too. ARK Invest and 21Shares recently amended their joint application. The amendment, filed with the Securities and Exchange Commission on October 11th, provides additional details on how the proposed ETF would operate.
Specifically, the amendment explains the ETF’s practices for custodying bitcoin assets and determining their values. It states the ETF’s Bitcoin will be held in segregated wallets and not commingled with other assets. The amendment also elaborates on other key areas like arbitrage mechanisms.
While the changes are spread throughout the filing, industry experts see this as a positive sign. Eric Balchunas, an ETF analyst at Bloomberg, believes the changes meant that ARC has received and dealt with SEC feedback. Generally, a dialogue like this between the regulator and an applicant only takes place when deliberations are in their later stages.
After months of wrangling, some analysts are now predicting a 90% chance of SEC approval by approximately January 1. Furthermore, GBTC’s discount to Bitcoin’s net asset value has narrowed to 15.87% as of October 13th, as the market priced in an imminent approval.
The approval of a spot Bitcoin ETF in the United States would be a major milestone for Bitcoin as an investable asset class. Unlike existing products such as Grayscale’s Bitcoin Trust (GBTC), a spot Bitcoin ETF would trade on a major exchange and track the price of Bitcoin directly.
This would provide a regulated vehicle for retail and institutional investors to gain exposure to Bitcoin without having to custody the assets themselves.
Additionally, a spot bitcoin ETF would add a layer of safety and security for “normie” and risk-averse investors who are interested in Bitcoin but have so far stayed away. This de-risking could, in turn, provide a much-desired boost to BTC’s price.