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JPMorgan Sees SEC’s Grayscale Loss as Proof of Upcoming Spot Bitcoin ETF

Published September 4, 2023 12:28 PM
Teuta Franjkovic
Published September 4, 2023 12:28 PM
Key Takeaways
  • Grayscale’s legal victory leads JPMorgan to anticipate SEC approval for Bitcoin ETFs.
  • SEC delay to mid-October hints at imminent Bitcoin ETF approvals and potential fee cuts amid growing competition.
  • Analysts unsure over spot Bitcoin ETFs impact on the broader crypto market.
  • They cite low investor interest in similar products in Canada and Europe.

The SEC will be compelled to accept the spot Bitcoin exchange-traded fund (ETF) applications submitted by numerous companies after losing its legal battle against Grayscale Investments, according to JP Morgan analysts lead by Nikolaos Panigirtzoglou .

According to a federal court decision, the SEC must reconsider its decision to deny Grayscale’s request to turn its Bitcoin trust into an ETF.

The SEC’s denial was deemed “arbitrary and capricious” by the court as the agency failed to explain why spot and futures-based Bitcoin ETFs were treated differently.

The analyst suggested  that for the SEC to reject Grayscale’s trust conversion and spot Bitcoin ETF applications, it would need to reverse its prior approvals of futures-based ETFs

Such a move, he added , would be highly disruptive and embarrassing for the SEC, making it unlikely.

Decisions by the SEC on spot Bitcoin ETFs submitted by a number of companies, including traditional financial industry titans like BlackRock, Fidelity Investments, and Invesco, have been delayed until mid-October.

Potential Wave of Competition and Fee Pressure

Analysts said that instead of giving a first-mover advantage to any one candidate, “[the delay] likely points to the approval of multiple spot Bitcoin ETF applications at once.”

If Grayscale’s trust gets converted to the largest Bitcoin spot ETF in the world, this might increase competition in ETF costs and put pressure on Grayscale to cut its fees.

Although the regulatory process for spot Bitcoin ETFs is moving forward favorably, JP Morgan thinks these products won’t have a substantial impact on the entire financial and crypto industries.

Spot Bitcoin ETFs in Canada and Europe have struggled to attract significant investor interest, as noted in the JP Morgan research paper. Additionally, recent gold ETF withdrawals have had a negative impact on bitcoin funds, particularly futures ETFs.

ETFs introduced in the United States are expected to perform similarly, according to analysts.

Approval Of a Spot Bitcoin ETF ‘Inevitable’

According to former head of the Securities and Exchange Commission (SEC) Jay Clayton , the US will eventually have a spot Bitcoin exchange-traded fund (ETF).

Clayton emphasized  that Bitcoin is clearly not a security. Both retail and institutional investors are seeking access to Bitcoin, especially trusted providers with fiduciary responsibilities who aim to offer this product to the public.

“So I think […] an approval is inevitable,” Clayton said and added  that “the dichotomy between a futures product and cash product can’t go on forever.”

According to the decision, the SEC would have to reject Grayscale’s petition once more on the basis of new objections or other factors other than the dangers of fraud and market manipulation in the spot bitcoin market.

Clayton accepted the prospect of a second rejection with fresh justifications, but he added that he is not aware of what those justifications might be.

The SEC delayed decisions on spot Bitcoin ETFs, requested by firms like BlackRock, Fidelity, and Invesco, until at least mid-October earlier this week. While Clayton suggests the SEC may wait until then for a decision, he expects ongoing progress in this regard.

A spot Bitcoin ETF, according to JPMorgan, will eventually be approved in the United States. The financial behemoth recently stated “it looks more likely that the SEC would be forced to approve the spot Bitcoin ETF applications that are still pending from several asset managers, including that from Grayscale,” in the wake of Grayscale’s success in its legal battle with the SEC.

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