After 24 meetings and 6 major revisions, there are 20 days left until the final decision on the Bitcoin spot ETF, and major applicants have entered the final sprint.
Background: SEC releases key signals on ETFs: “Bitcoin spot ETFs” can only be launched by deleting the implication of physical redemption.
There are many applicants for the Bitcoin spot ETF, and they have been in a back and forth game with the U.S. Securities and Exchange Commission (SEC) for several years, but the SEC has never approved it. This time, the SEC set a deadline for the response to the applicants from January 5th to 10th, 2024, which is within the next 20 days.
So far, 13 issuers have submitted applications for the Bitcoin spot ETF to the SEC, including Grayscale, BlackRock, Fidelity, VanEck, ARK, 21Shares, and Bitwise, among others.
The Bitcoin spot ETF is a fund product designed to track the price trend of Bitcoin and allows investors to trade through the securities market.
Analysts pointed out that once the Bitcoin spot ETF is approved, it will allow investors to acquire cryptocurrency positions through stock purchases without the need for digital wallets or trading accounts, attracting a large number of traditional investors and generating significant benefits for the cryptocurrency market.
In order to increase the chances of approval, BlackRock is intensifying its modifications to the application file and has made the latest six important modifications based on the requirements of the SEC and Nasdaq, including agreeing to the cash redemption model in an attempt to dispel concerns about market risks and price manipulation.
Another positive signal for approval comes from the SEC’s own loosened attitude.
During an interview with CNBC on December 14th, SEC Chairman Gary Gensler stated that he would “reassess” the SEC’s stance and take a more cautious and favorable approach to Bitcoin ETFs.
Coinbase’s role has changed from “primary broker” to “primary executing agent.” After the change, Coinbase, as the primary executing agent, will handle the buying and selling orders for the ETF product, rather than providing services related to primary brokers as before. Currently, many of the wordings in this part remain consistent with the previous submission.
At the same time, BlackRock has also readjusted the roles and compliance responsibilities within its ETF product. It replaced “market makers” with “Bitcoin trading partners,” indicating that entities involved in Bitcoin trading may expand and adopt more proactive trading execution methods.
In a previous meeting in November, BlackRock also agreed to include a joint regulatory agreement to mitigate market manipulation risks associated with cryptocurrency trading, which is a concern of the SEC. In this meeting, BlackRock also provided a detailed presentation on the two modes of “physical redemption” and “cash redemption.”
The difference between these two methods lies in whether the fund shares correspond to Bitcoin or US dollars during the creation and redemption process.
The “physical model” links fund shares to the Bitcoin trading price, and the issuer does not need to consider the fluctuation of market prices during the delivery process. The “cash redemption” model adds a “cash custodian,” which is equivalent to creating a separation between the US dollar and the Bitcoin market, which is the solution favored by the SEC.
For the SEC, using the cash model may make it easier to regulate the Bitcoin spot market and facilitate its integration into the traditional financial system. In this way, market makers are subject to cash settlement, and each transaction cannot escape the supervision of tax authorities.
According to Fox Business, obtaining SEC approval for the Bitcoin spot ETF is a key priority for BlackRock as a company. The company’s founder and CEO, Larry Fink, referred to Bitcoin as an “international asset” and a “store of value” that can be comparable to the long-standing position of gold.
SEC will “review” 8-12 applications
In addition to BlackRock, several other Bitcoin spot ETF applicants are also intensively discussing with the SEC to make a final push.
Hashdex has met with the SEC again this week; Wisdomtree has submitted the fourth revised Bitcoin spot ETF prospectus (S-1 filing) to the U.S. SEC; and Ark 21Shares’ Bitcoin spot ETF (ARKB) has been added to the website of the Depository Trust & Clearing Corporation (DTCC).
In a recent interview with CNBC on December 14th, SEC Chairman Gary Gensler stated that the SEC is “reviewing” about 8 to 12 applications. He also emphasized, “I am the chairman of the committee, and I cannot make any judgments in advance. So, this process is ongoing.”
Gary referred to the impact of SEC’s litigation with Grayscale as a result of court rulings.
In 2021, Grayscale applied to convert its GBTC trust into an ETF but was rejected by the SEC, citing reasons such as “failure to prevent market manipulation.” Grayscale subsequently appealed to the court, claiming that the SEC’s actions may violate the Administrative Procedure Act of the United States because the SEC had already approved Bitcoin futures ETFs before making this decision, and there is no substantial difference in risk between futures ETFs and Grayscale’s products.
On August 29th this year, the Washington D.C. Circuit Court of Appeals ruled in favor of Grayscale, requiring the SEC to reconsider Grayscale’s application. Since then, the SEC has not appealed the court’s ruling. This is also considered to “increase the possibility of ETF approval.”
After this, the SEC’s attitude towards rejecting Bitcoin spot ETF applications seems to have become more relaxed.
Gary stated in the CNBC interview:
This latest statement from the current SEC chairman immediately encouraged practitioners in the cryptocurrency industry, demonstrating their expectations that the approval of the Bitcoin spot ETF will have a positive impact on the overall cryptocurrency market.
Michael Saylor, the Chairman of MicroStrategy, believes that the market should not underestimate the importance of the upcoming spot Bitcoin ETF, calling it “the biggest development on Wall Street in 30 years.”
Fundstrat, an investment research company, predicts that once the Bitcoin spot ETF is approved, the Bitcoin price will skyrocket to over five times the current level, exceeding $150,000 and possibly reaching $180,000.
Institutions are optimistic because the approval of the Bitcoin spot ETF may bring incremental capital inflows to the market.
Matthew Sigel, Head of Digital Asset Research at VanEck, believes:
On December 21st, CryptoQuant analysts also stated in a report that the anticipated demand for Bitcoin from multiple spot ETFs in the United States, the upcoming halving, and the growth of the broader stock market against the backdrop of interest rate cuts may push Bitcoin to a high of $160,000, and the bull market may start in 2024.
With the relentless efforts of Bitcoin spot ETF applicants such as BlackRock, the prospect of overcoming regulatory barriers seems more promising.