What Is a Spot Bitcoin ETF?
Spot Bitcoin ETFs are investment vehicles that provide exposure to the price of Bitcoin. They are typically aimed at institutional or traditional investors.
Unlike in some investment vehicles, spot Bitcoin ETFs require the asset manager to directly hold Bitcoin as an underlying asset. This means that the first U.S. spot Bitcoin ETFs are expected to create significant demand for Bitcoin, possibly improving the price of Bitcoin and the overall cryptocurrency market.
The U.S. Securities and Exchange Commission (SEC) is responsible for approving all exchange-traded funds in the U.S. Though it has approved numerous other cryptocurrency futures ETFs, it has not yet approved a spot Bitcoin ETF.
Which Firms Aim to Obtain an ETF?
Several firms currently aim to obtain a spot Bitcoin ETF. This includes BlackRock and Fidelity, the largest and third-largest asset managers in operation. Other applicants include Ark Invest and 21 Shares, Bitwise, VanEck, Wisdomtree, Invesco, Valkyrie, Global X, Hashdex, and Franklin Templeton. Grayscale additionally seeks to convert its existing GBTC fund to a spot Bitcoin ETF.
What Concerns Does the SEC Have?
The SEC has addressed various issues in recent months, including:
- Surveillance-sharing agreements: The SEC was initially concerned with market manipulation and other risks in the summer of 2023; many applications added surveillance-sharing agreements with the crypto company Coinbase at that time to address the regulator’s concerns.
- Cash settlement models: The SEC has addressed certain concerns around cash and in-kind creation and redemption models, the latter of which would allow for Bitcoin transactions in some circumstances. BlackRock updated its filing to replace mentions of in-kind models with cash models in mid-December; other companies seemingly will make the same changes.
- Grayscale’s SEC case: The SEC previously attempted to disregard certain applications; however, a 2023 court settlement compels it to address Graycsale’s case. Grayscale has confirmed that it is engaging with the SEC, and SEC chair Gary Gensler has acknowledged the ruling.
When Will the First ETF Receive a Decision?
The SEC must decide on Ark Invest’s spot Bitcoin ETF application by Jan. 10, 2024. It can approve or reject the ETF but not delay its decision at that point.
How Likely Is Approval?
Many sources believe that there is a 90% chance that a spot Bitcoin ETF will be approved by the Jan. 10 deadline. Industry members that have supported this estimate include Bloomberg ETF analysts Eric Balchunas and James Seyffart, Galaxy Digital CEO Mike Novogratz, and analysts at K33 Research.
However, despite engagement from the regulator and positive expectations throughout the crypto sector, approval is not guaranteed.
Will More Than ETF Be Approved?
There are numerous similarities between many ETF applications, both in their content and their supporting exchanges and partner companies. Those factors mean that the SEC could approve multiple ETFs at the same time or in succession. Ark CEO Cathie Wood believes that more than one spot Bitcoin ETF will be approved at once; Bloomberg ETF analyst James Seyffart supports this.
However, it is possible that the SEC will not approve every application even if it does approve more than one fund at once.