Bitcoin coins are seen at a stand during the Bitcoin Conference 2023, in Miami Beach, Florida, U.S., May 19, 2023.
Marco Bello | Reuters
It’s put up or shut up time for the SEC on a bitcoin ETF.
The Securities and Exchange Commission is required to give a thumbs up or thumbs down to ARK’s application for a bitcoin ETF by Aug. 13.
Eight other organizations, including BlackRock, Bitwise, VanEck, and WisdomTree, have also filed applications for a spot bitcoin ETF.
Yes, no or punt?
Ark’s application for a spot bitcoin ETF was published in the Federal Register on May 15. A June 15 filing in the Federal Register from the SEC designated Aug. 13 “as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change.”
However, the SEC can extend the deadline to a maximum of 240 days. At its maximum, the SEC could theoretically delay a final response until Jan. 10, 2024 for the Ark application, and until March 2024 for the others, according to Matt Hougan, chief investment officer at Bitwise Asset Management, which has an application in front of the SEC.
Get in line: Bitcoin ETF applications
(Date filed & Last possible review)
Ark/21 Shares Bitcoin Trust 5/15/23 1/10/24
Bitwise Bitcoin ETF Trust 7/18/23 3/15/24
BlackRock Bitcoin ETF Trust 7/19/23 3/16/24
VanEck Bitcoin Trust 7/19/23 3/16/24
WisdomTree Bitcoin Trust 7/19/23 3/16/24
Valkyrie Bitcoin Fund 7/19/23 3/16/24
First Trust Galaxy Bitcoin 7/19/23 3/16/24
Fidelity Wise Origin Bitcoin Trust 7/19/23 3/16/24
A ninth organization, Grayscale, has filed to convert its Grayscale Bitcoin Trust into a Bitcoin Spot ETF.
Approvals would be simultaneous
Given the “first mover” advantage would be tremendous, many are now arguing that if a bitcoin ETF is ultimately approved by the SEC, all the applications should be approved at once.
That’s exactly what Grayscale said in a recent letter to the SEC.
“[T]he SEC’s actions related to bitcoin ETFs should be made in a fair and orderly manner.” the letter said. “As a disclosure-based regulator, the SEC should not pick winners and losers.”
‘Surveillance sharing agreement’
The SEC has denied all prior spot bitcoin ETF applications, citing fraud and manipulation in the underlying markets. It has approved bitcoin ETF futures.
The current crop of applications have a new wrinkle: a “surveillance sharing” agreement with exchanges like Nasdaq and Cboe.
This would allow for the sharing of information about market trading activity, clearing activity, and customer identification, which would reduce the chances for market manipulation. It would also seek to ensure that investor assets cannot be diverted by the exchange to an unauthorized party, which was an issue with FTX.
It’s not clear if these changes would be sufficient to cause the SEC to approve a spot bitcoin ETF. The SEC has reportedly said the new applications were inadequate, and exchanges have been scrambling to update their filings to address the SEC’s concerns.
Forcing the SEC’s hand
Many believe that the SEC will not move unless it is forced to do so.
Supporters of a spot bitcoin ETF have been emboldened by a court case unfolding between Grayscale Bitcoin Trust (GBTC) and the SEC.
Grayscale has sued the SEC over its refusal to allow the trust to convert to a bitcoin ETF.
The SEC cited familiar concerns over market manipulation. During hearings on the case in March, a panel of judges in the D.C. Court of Appeals in Washington pressed the SEC on why it had denied the application, noting that the commission had previously approved bitcoin futures agreements which also had surveillance agreements in them.
“It seems like it’s fine for an agency to say OK, we need some more information, but it seems there’s quite a bit of information here on how these markets work together, and the SEC has not offered any explanation … that the petitioners here are wrong,” Judge Neomi Rao said.
Bitcoin supporters have been cheering Graycale’s efforts.
“They’re forcing the SEC through a legal process, to provide clarity,” Purpose Investments CEO Som Seif told me. Seif runs the Purpose Bitcoin ETF, a spot bitcoin ETF that has been trading in Canada since February, 2021.
“I think that that’s a really important thing, because through the regulatory and legal process, they will be forced to actually give very specific reasons and actually back those reasons… [SEC Chairman Gary Gensler] is going to keep kicking the can down the road until he’s otherwise forced to say, ‘Here’s why.'”
Gaming the odds
While many in the crypto community are putting on a game face, others are doubtful, noting that Gensler seems implacably opposed to approving a spot bitcoin ETF.
“We’re not going to see a spot bitcoin ETF any time soon,” Ric Edelman, founder of the Digital Assets Council of Financial Professional (DACFP), told CNBC at a recent conference.
“We would love a bitcoin ETF,” Edelman said. “It’s the simplest, easiest, cheapest, most liquid affordable way to invest in bitcoin. But the SEC has rejected every Bitcoin ETF application for the past 10 years.”
Others believe the environment is changing.
The crypto community took note that the SEC approved a 2x leveraged Bitcoin ETF (BITX) in June, and there has recently been a rush of applications for an ethereum futures ETF.
Last week, Bloomberg Intelligence’s James Seyffart and Eric Balchunas put the odds of a bitcoin ETF approval at 65%, noting, among other things, the SEC’s poor showing in the Grayscale litigation.
“Finally, pressure from BlackRock and possibly Democrats could make denying the ETFs politically untenable for Gensler,” they wrote in a post on X, the site formerly known as Twitter.
Regardless of the ultimate outcome, most observers are still betting the SEC will again delay making a decision.
“This pattern — of taking close to the full 240 days — is the standard they’ve been following with spot bitcoin ETF applications since 2016.” Bitwise’s Hougan told me.
Canadian spot bitcoin ETF is up and running
Meantime, Seif’s spot bitcoin ETF seems to be doing fine…in Canada.
“It continues to perform exactly as you would expect from a spot,” he said. “We’ve proven a safe way to own crypto and, you know, got billions of dollars and I think we’re really happy that we have a lot of American investors.”
Ruling by litigation: In the absence of clear rules, it’s a mess
Edelman, like many others in the crypto community, have been critical of Gensler’s refusal to greenlight a bitcoin ETF, but he and others have been especially critical of the failure of the SEC, the Commodities Futures Trading Commission, and Congress to pass comprehensive crypto legislation.
He noted that the SEC recently sued Binance and Coinbase, claiming that Coinbase was allowing trading in crypto assets that should have been registered as securities and that Binance was operating an unregistered securities exchanges and was commingling billions of dollars of customer accounts.
“The SEC is refusing to say what we’re allowed to do, but then when we go do things, they’re filing lawsuits saying we shouldn’t have done it,” Edelman said. “It’s a lousy way to run commerce and business in America.”
Matt Hougan, Chief Investment Officer for Bitwise Asset Management, will join us on ETF Edge on Monday at 1:10 PM ET.
