Key Points:
- SEC’s potential delay until early 2024 for Bitcoin ETF approval.
- Factors contributing to the prolonged decision-making process.
- Impact on the cryptocurrency market and investor sentiment.
With a potential 240-day time frame at their disposal to extend crypto ETF evaluation periods, the SEC might defer decisions on applications submitted in July 2023 until March 2024.
The United States Securities and Exchange Commission (SEC), the ultimate authority on permitting cryptocurrency exchange-traded funds (ETFs), appears to be inching closer to greenlighting this investment avenue after years of applications.
In June, BlackRock, the largest asset management firm globally, appended its ETF application to the existing stack of Bitcoin ETF filings being currently reviewed by the SEC. This move reignited investor interest in and beyond the cryptocurrency realm. Subsequently, BlackRock entered a “surveillance-sharing agreement” with cryptocurrency exchange Coinbase following indications that the SEC might view ETF applications more favorably under such arrangements.
Numerous companies, including BlackRock, have their crypto ETF applications awaiting SEC review. ARK Invest, led by CEO Cathie Wood, submitted its ARK 21Shares Bitcoin ETF proposal in May 2023, receiving the latest delay from the SEC on August 11, extending the deadline by another 21 days to gather public opinions on the proposal.
In accordance with SEC directives, the regulator can prolong ETF assessment periods for up to 240 days, either by soliciting public input or by other means, starting from the initial filing in the Federal Register. However, no spot Bitcoin ETF proposal from any U.S. firm has ever secured SEC approval, with the regulator only endorsing investment products linked to BTC futures from October 2021 onwards.
The potential challenge in obtaining SEC approval for a spot crypto ETF lies in the unique nature of the investment vehicle. Bitcoin futures-linked ETFs permit individuals and businesses to invest in the cryptocurrency without direct exchange involvement, while a spot BTC ETF could involve holding actual Bitcoin within a fund for more direct investment exposure.
Cameron and Tyler Winklevoss, co-founders of Gemini, were the first to apply for a crypto exchange-traded product listing with their Bitcoin Trust in July 2013, a time when many regulators may not have comprehended digital currencies. The SEC eventually rejected their application.
Stuart Barton, co-founder and chief investment officer of Volatility Shares, the company behind a leveraged Bitcoin futures ETF launched in June, shared that their interaction with the SEC involved iterative negotiations. The regulator proposed adjustments to disclosure documents but was generally cooperative. Barton speculated that smaller firms might have a competitive edge with the SEC in terms of offering a spot crypto ETF.
“Bigger companies have been following the same playbook they’ve used for years,” Barton remarked. “Yes, there are new applications and filings, but they haven’t really progressed the argument.”
As of now, major asset management firms with spot Bitcoin ETF applications being reviewed by the SEC include BlackRock, ARK Invest, Bitwise Asset Management, VanEck, WisdomTree, Invesco, Galaxy Digital, Fidelity, and Valkyrie. With the maximum 240-day extension window accessible to the SEC, ARK’s Bitcoin ETF could be approved or disapproved by January 2024, while decisions on other firms’ proposals could extend until March 2024.
The SEC’s cautious stance toward endorsing a spot crypto ETF could partly stem from the nuanced nature of the U.S. cryptocurrency market, which, though regulated, has prompted numerous lawmakers and industry leaders to call for clearer guidelines and supervision. Presently, the SEC is pursuing enforcement actions against Coinbase, Binance, and Ripple, having already imposed financial penalties on entities like Bittrex. Barton added:
“Both sides will need to compromise to some extent. I believe the SEC will need to exhibit a bit more open-mindedness… There will be more concessions, I think, from the crypto side.”
U.S. legislators are presently deliberating on legislation to define the roles of the SEC and Commodity Futures Trading Commission (CFTC) in regulating digital assets more precisely. Moreover, until regulations are more defined, both regulators and the industry may need to heed court rulings, as a judge’s decision in the SEC vs. Ripple lawsuit largely deemed XRP not a security, impacting everyone engaged with cryptocurrencies in the U.S.
“The [ETF application process] places the SEC in a remarkably influential position,” Barton noted. “Gensler holds substantial sway over that; the commission’s political composition certainly exerts its influence.”
As of August, some analysts suggest the chances of a spot Bitcoin ETF gaining U.S. approval are around 65%, partly due to BlackRock’s application. Cathie Wood and Grayscale, the asset manager currently suing the SEC over its ETF application, have hinted that the regulator might simultaneously approve multiple applications to ensure no single company gains an advantage over others.
