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The race to list the first spot-traded bitcoin (BTC) exchange-traded fund (ETF) in the United States has seen the entry of major financial institutions such as BlackRock, Fidelity and VanEck.
While the US Securities and Exchange Commission (SEC) first approved a bitcoin-linked futures ETF in October 2021, the current filing is for a spot bitcoin ETF. Following Grayscale’s recent legal victory against the SEC’s review of its Spot Bitcoin ETF proposal, many now believe the investment fund has a higher chance of approval.
The interest from BlackRock – the world’s largest asset manager with more than $8 trillion in assets under management – has prompted several other institutions to reapply for the spot bitcoin ETF.
Most of these asset managers have either had to withdraw their spot bitcoin ETF filings or face rejection due to SEC objections regarding spot-derivative ETFs. Here are the major bitcoin ETF applicants:
- black RockBlackRock filed for the Spot Bitcoin ETF on June 15, with Coinbase the crypto custodian and spot market data provider and BNY Mellon its cash custodian. The filing shocked the crypto and traditional finance worlds, and the firm’s CEO Larry Fink previously called BTC an index for money laundering. On July 15, the SEC formally 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 December 8, 2021, which was rejected by the SEC in 2022. The agency claimed that the ETF fell short in terms of investor protection; However, with BlackRock entering the spot bitcoin ETF race, WisdomTree re-filed with the SEC on July 19.
- Valkyrie Investments: Asset management firm Valkyrie filed its first spot bitcoin ETF application in January 2021, but faced SEC rejection like many other asset managers. However, with enthusiasm waning towards the spot bitcoin ETF, Valkyrie re-filed its application on June 21. The ETF will reference the Chicago Mercantile Exchange (CME) reference price for bitcoin and trade on NYSE Arca, with Xapo as the crypto custodian.
- ark investment: ARK filed an application for its ARK 21Shares Bitcoin ETF in June 2021. ARK Invest has partnered with Swiss-based ETF provider 21Shares to offer the fund, and it will launch on the Chicago Board Options Exchange (Cboe) BZX exchange under the ticker symbol . ARKB if approved.
- VanEckVanEck is one of the earliest bitcoin ETF applicants, making its first filing in 2018. The asset manager withdrew its application in September 2019 and made a second attempt with the SEC in December 2020 to have the trust’s shares ready to trade on the Cboe. BZX Exchange. The firm filed a fresh application in July 2023.
- Loyalty/Wise Origin: Fidelity Investments first applied for the Spot Bitcoin ETF in 2021 and its Wise Origin Bitcoin Trust on July 19, 2023. Wise Origin Bitcoin Trust will act as administrator to Fidelity Service Company, while Fidelity Digital Assets will act as BTC custodian.
- Invesco Galaxy Bitcoin ETF: Invesco first filed an application for its Invesco Galaxy Bitcoin ETF jointly with Galaxy Digital on September 22, 2021. The joint venture re-filed its application in July. The combined bitcoin ETF will be “materially backed” by bitcoin, with Invesco Capital Management as the sponsor.
- bitwise: Bitwise first applied for a spot bitcoin ETF in October 2021, but faced rejection from the SEC. The asset manager re-filed its application in August 2023.
- globalx: Fund manager GlobalX joined the ETF race in 2021 along with several other financial giants when it filed for the Spot Bitcoin ETF. The fund manager re-filed his application in August 2023 and became the ninth applicant. The company has named Coinbase as its surveillance-sharing partner.
In light of Grayscale’s recent legal victory and a wave of new applications, ETF analysts at Bloomberg have raised their expected approval probability for the Spot Bitcoin ETF from 65% to 75%.
New: @JSeyff And I’m raising my chances for a spot bitcoin ETF to launch this year to 75% (95% by the end of ’24). While we put a Grayscale win at our previous 65% odds, the unanimity and decisiveness of the decision was beyond expectations and the SEC had “little leeway.” @NYCStein pic.twitter.com/IyEGmWjuHa
— Eric Balchanas (@EricBalchanas) 30 August 2023
As expected, the SEC has delayed its decision on all seven applicants. Analysts predicted that the SEC might not make a decision on the ETF until early 2024 as the final deadline approaches (listed below).
Spot bitcoin etf decision deadline. Source: Bloomberg/Twitter
John Glover, chief investment officer at crypto lending platform Layden, told Cointelegraph that the ARK 21Shares decision coming Jan. 10 will be the first real indicator of whether the SEC is ready to start approving these types of applications. At that point the final deadline has passed, and a decision will need to be made either way.
Why has the SEC rejected spot bitcoin ETFs in the past?
In previously rejecting VanEck’s spot bitcoin ETF, the SEC claimed that the bitcoin market was not large or mature enough to keep up with the demand for the ETF market. The commission also noted that price volatility and an inadequate level of trading monitoring could potentially make the market prone to fraud and manipulation.
However, with the entry of BlackRock, market pundits have started to believe that the spot bitcoin ETF has a good chance of getting approved.
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One of the major factors preventing spot ETFs from getting approved is the nature of the fund.
Futures ETFs are based on futures contracts rather than digital assets, which is a significant difference. Futures markets are already heavily regulated to prevent market manipulation, making it easier for the SEC to approve such ETFs.
At the heart of these spot ETF rejections is the requirement that the issuer enter into a “custodial-sharing agreement” with a sufficiently large and regulated bitcoin-related market. Such agreements are integral to ensuring that the SEC can conduct detailed investigations in the event of any market irregularities.
An analyst at Bitfinex Alpha told Cointelegraph that one of the key concerns behind the rejection of the Spot Bitcoin ETF is the regulator’s ability to track and continuously ensure asset safety and custody. However, for this to happen, the US needs more regulatory and legal infrastructure before “the SEC or other involved parties are comfortable allowing an ETF provider to handle this.”
“If not, then the whole purpose of ETFs (which is to avoid dealing with digital asset wallets or crypto exchanges) is defeated. Thus, it would not be fair to say that spot bitcoin ETFs do not propose manipulation concerns in the eyes of the SEC. The 2018 rejection of the ProShares Bitcoin ETF illustrates this very point. Another concern regarding the literature of the document was the ability of the bitcoin market to handle the volumes that would be brought in through the introduction of spot ETFs,” said the analyst.
The SEC is primarily concerned with the robustness of the trading venues. The regulator oversees futures exchanges such as the CME and CBOE, and any futures ETF will be limited to trading only at those regulated venues. While there are no SEC-regulated spot exchanges.
However, not everyone agrees with the SEC’s assumptions about the vulnerabilities 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. The concept that a US regulator can provide adequate ‘oversight’ against market manipulation in a global 12-figure market is delusional. So, to be honest, it probably comes down to assigning responsibility to the CFTC rather than maintaining accountability. Given that the SEC has an ‘investor protection’ mandate.”
He added that while continuing to reject even the simplest products like BTC ETFs, “the SEC keeps pushing the demands of crypto offshore and unregulated players. While the BTC ETF may not be perfect, it is a BTC ETF with Gensler’s family friend SBF.” Much safer than buying. [Sam Bankman-Fried] on FTX.”
Richard Gardner, CEO of tech infrastructure firm Modulus, believes that futures ETFs have long been considered more attractive to regulators and when and whether the decision on spot ETFs will depend.
He told Cointelegraph that a Spot BTC ETF “is coming along as of late, and heavy investment from major players like BlackRock and Fidelity is indicative of this.” As long as major players are on the lookout, the industry is considered viable in the long term, despite any short-term setbacks. If the SEC continues to refuse to act, politicians will be forced to act and develop their own answer to the crypto dilemma.
Ether futures ETF more likely to be approved
While crypto enthusiasts would love to see a spot ETF, which would legitimize crypto as an asset class, US regulators are more likely to favor futures ETFs.
Bloomberg analysts predict that the chances of approval for an ether (ETH) futures-derived ETF exceed 90%, with about a dozen institutions queuing up for approval.
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Reports in the financial media suggest that there is a high probability of the SEC approving an ether futures-based ETF by October.
This is not a surprise to us, we said they would clear Ether Futures right at the start of the race. Nice to be acknowledged. What does this mean for Spot now? It’s hard to say any more than this suggests that their views/policies/tolerances may have changed. https://t.co/JXCxNUpj2U
— Eric Balchanas (@EricBalchanas) 17 August 2023
Ken Timsit, managing director of blockchain startup accelerator Cronos Labs, told Cointelegraph that “the thesis in favor of futures is that futures will enable investors to send signals about price developments expected by the market, which in turn will help reduce volatility.” Will do.” The price of bitcoin and ethereum balances out the large swings in price that we have seen recently.
Doug Schwenk, CEO of Digital Asset Research, told Cointelegraph that “the near-term psychological impact is likely to boost crypto markets as another proof point that regulators are open to developing listed and elusive spot ETFs.” Hope continues.”
Source: cointelegraph.com
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