Tracking Bitcoin ETF Proposals: Applicants and Potential SEC Timelines

The competition to launch the inaugural spot-traded Bitcoin exchange-traded fund (ETF) in the United States has intensified with the involvement of prominent financial giants such as BlackRock, Fidelity, and VanEck.

Unlike the initial approval of a Bitcoin-linked Futures ETF by the U.S. Securities and Exchange Commission (SEC) in October 2021, the current wave of applications focuses on spot Bitcoin ETFs. Grayscale’s recent legal victory against the SEC’s scrutiny of its spot Bitcoin ETF proposal has boosted optimism regarding the prospects of these investment funds receiving approval.

BlackRock, the world’s largest asset manager overseeing more than $8 trillion in assets, triggered renewed interest from other institutions, leading them to resubmit their spot Bitcoin ETF applications. Previously, many of these asset managers had to withdraw their applications or face rejection due to the SEC’s reservations about spot-derived ETFs. Here are the key players in the Bitcoin ETF race:

  1. BlackRock: BlackRock filed its spot Bitcoin ETF application on June 15, with Coinbase as the crypto custodian and spot market data provider, and BNY Mellon as the cash custodian. This move surprised both the crypto and traditional finance sectors. On July 15, the SEC formally accepted BlackRock’s application for review.
  2. WisdomTree: Initially filing for a spot Bitcoin ETF in the U.S. on December 8, 2021, WisdomTree faced rejection from the SEC in 2022, citing concerns about investor protection. However, with BlackRock’s entry, WisdomTree resubmitted its application on July 19.
  3. Valkyrie Investments: Valkyrie filed its first spot Bitcoin ETF application in January 2021 but, like many others, faced rejection from the SEC. With renewed enthusiasm for spot Bitcoin ETFs, Valkyrie refiled its application on June 21.
  4. ARK Invest: ARK filed an application for its ARK 21Shares Bitcoin ETF in June 2021. The firm partnered with Swiss-based ETF provider 21Shares to offer the fund, with plans to launch it on the Chicago Board Options Exchange (Cboe) BZX Exchange upon approval.
  5. VanEck: VanEck was one of the early Bitcoin ETF applicants, making its initial filing in 2018. After withdrawing its application in September 2019, the asset manager made another attempt with the SEC in December 2020. In July 2023, VanEck filed a new application.
  6. Fidelity/Wise Origin: Fidelity Investments initially applied for a spot Bitcoin ETF in 2021 and resubmitted its Wise Origin Bitcoin Trust application on July 19, 2023. Fidelity Service Company will serve as the administrator, while Fidelity Digital Assets will act as the BTC custodian.
  7. Invesco Galaxy Bitcoin ETF: Invesco first filed an application for its Invesco Galaxy Bitcoin ETF in collaboration with Galaxy Digital on September 22, 2021. The joint venture resubmitted its application in July, aiming to create a “physically backed” Bitcoin ETF.
  8. Bitwise: Bitwise’s first spot Bitcoin ETF application was filed in October 2021 but faced rejection from the SEC. In August 2023, the asset manager resubmitted its application.
  9. GlobalX: Fund manager GlobalX entered the ETF race in 2021, filing for a spot Bitcoin ETF. It resubmitted its application in August 2023, becoming the ninth applicant, with Coinbase named as its surveillance-sharing partner.

Following Grayscale’s recent legal triumph and the resurgence of ETF applications, analysts at Bloomberg have increased their estimated approval likelihood for a spot Bitcoin ETF to 75% from 65%.

As expected, the SEC has postponed decisions on all seven applicants. Analysts previously speculated that the SEC might not make a decision on an ETF until early 2024, closer to the final deadlines.

John Glover, chief investment officer at crypto lending platform Ledn, believes the ARK 21Shares verdict scheduled for January 10 will be a pivotal moment, signaling the SEC’s readiness to approve such applications.

So, why has the SEC rejected spot Bitcoin ETFs in the past?

In earlier rejections, such as VanEck’s spot Bitcoin ETF, the SEC expressed concerns about the Bitcoin market’s size and maturity, casting doubt on its ability to sustain ETF market demand. Additionally, the SEC cited price volatility and insufficient trading surveillance as potential catalysts for market fraud and manipulation.

However, with BlackRock’s involvement, many now see improved prospects for spot Bitcoin ETF approval.

One of the primary hurdles to spot ETF approval lies in the fund’s nature. Unlike futures ETFs, which are based on futures contracts, spot ETFs are tied directly to the digital asset itself. Futures markets are already subject to stringent regulations to prevent manipulation, making it easier for the SEC to consider such ETFs.

A critical requirement for spot ETF issuers is the inclusion of a “surveillance-sharing agreement” with a sufficiently large and regulated Bitcoin-related market. These agreements are vital for the SEC to conduct thorough investigations in case of market irregularities.

A Bitfinex Alpha analyst noted that the SEC’s rejection of spot Bitcoin ETFs is rooted in concerns about tracking, asset safety, and custody. To address these concerns, the U.S. needs to establish more regulatory and legal infrastructure, making the SEC and other stakeholders comfortable with ETF providers handling these assets.

Despite the SEC’s reservations, not everyone agrees with its assumptions about spot crypto ETF market vulnerabilities. Some argue that crypto futures are inferior to spot in terms of tracking error, questioning the regulator’s ability to surveil a global 12-figure market effectively.

The debate continues, with some experts suggesting that by continuing to reject products like a BTC ETF, the SEC may inadvertently push demand for crypto to unregulated players and offshore markets.

Richard Gardener, CEO of tech infrastructure firm Modulus, believes that futures ETFs have long been favored by regulators and that the approval of a spot ETF is a matter of “when” rather than “if.”

While crypto enthusiasts hope for spot ETFs to legitimize cryptocurrencies as an asset class, U.S. regulators seem more inclined to support futures ETFs. Bloomberg analysts predict over a 90% chance of approval for an Ether futures-derived ETF, with numerous institutions seeking approval.

Reports in financial media even suggest that the SEC might approve an Ether futures-based ETF as early as October.

Ken Timsit, managing director at blockchain startup accelerator Cronos Labs, argues that futures ETFs could help mitigate the volatility of Bitcoin and Ethereum prices by enabling investors to signal expected price evolutions.

Doug Schwenk, CEO of Digital Asset Research, believes that approving a futures ETF could positively impact crypto markets, demonstrating regulatory openness to evolving the space and potentially paving the way for a spot ETF in the future.

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