Expectations for the U.S. Securities and Exchange Commission’s approval of two upcoming spot bitcoin ETF (exchange-traded fund) applications are low, and have faded since the approval of Teucrium’s futures-based product that initially provided some optimism.
The two applications currently on investors’ radar are those of the Bitwise Bitcoin ETP Trust, with a decision deadline of June 29, and the Grayscale Bitcoin Trust (GBTC), with a deadline of July 6. (Grayscale’s parent company is the Digital Currency Group, which also owns CoinDesk as an independent subsidiary.) Both investment issuers have had their current applications delayed multiple times by the SEC and the upcoming dates represent a final deadline for the SEC to make a decision.
Bloomberg Intelligence analyst James Seyffart, who closely tracks the ETF sector, told CoinDesk he views the approval of either application as “highly unlikely.” Seyffart said the SEC has been clear about what it wants to see before giving the green light to a spot bitcoin product.
“The [SEC is] not approving a spot bitcoin ETF until a ‘market of significant size’ has surveillance-sharing agreements or is regulated by the likes of the SEC or CFTC,” Seyffart said.
Thus, until a “spot bitcoin exchange or likely multiple spot bitcoin exchanges come under the purview of the SEC and/or CFTC, the SEC isn’t going to approve a spot bitcoin ETF,” he said.
Similar thoughts were shared by Nate Geraci, president of The ETF Store, an investment advisory firm specializing in ETFs. “The overwhelming market assumption is that the SEC will disapprove these ETFs,” Geraci told CoinDesk, adding that SEC Chair Gary Gensler hasn’t provided any change in communications around these approvals.
“Chairman Gensler has consistently messaged that until the SEC has some level of direct regulatory oversight of crypto exchanges, a spot bitcoin ETF won’t be approved,” Geraci said.
To be sure, the recent narrowing of the discount between GBTC’s share price and the price of bitcoin has led some to speculate there’s optimism in the marketplace regarding an approval Other observers foresee an approval at some point, though the recent turmoil from firms such as Celsius and BlockFi may cause the SEC to slow down any approvals in the near-term.
“It seems that it’s no longer a question of ‘if’ but just a question of ‘when’ the SEC will finally approve a spot ETF,” Bradley Duke, co-CEO of London-based ETF issuer ETC Group. “But the current crypto market turbulence, including the fallout from the collapse of UST and Terra Luna and the distress of major crypto finance firms like Celsius and BlockFi, could all contribute to giving the SEC reason to delay further opening of the floodgates.”
And a dragged-out process may not be the best sign for the sector, according to Oppenheimer equity research analyst Owen Lau.
“It appears to me that the longer it takes, the farther the industry tends to walk away from the SEC, and the harder it becomes to get the approval,” Lau told CoinDesk. “The chance that it might take a very long time to get the spot ETFs approval, or it might never get approved by the SEC, has been increasing.”
The longer-term outlook
While Bitwise Chief Investment Officer Matt Hougan wasn’t able to comment on his company’s specific application with the SEC, he’s optimistic the U.S. market will eventually see a spot bitcoin ETF.
“In general, I think it’s right to look at the SEC’s recent actions and see continued progress in their comfort with the bitcoin space,” Hougan told CoinDesk.
“We now have a 1940 Act bitcoin futures ETF, a 1933 Act bitcoin futures ETF and an inverse bitcoin futures ETF,” Hougan noted, referring to previous approvals of bitcoin-related ETFs. “Each one represents increasing comfort with the bitcoin market.”
In the end, a spot bitcoin ETF will lower costs and make the way American investors access the bitcoin market more secure, Hougan argued.
For its part, Grayscale has been more assertive in seeking an approval. Some of its efforts have included marketing to urge members of the public to voice their support to the SEC, a May meeting with the SEC and the strengthening of its legal team with the addition of Donald B. Verrilli Jr., who previously served as a solicitor general in the Obama Administration.
GBTC, with about $13 billion in assets under management, currently trades at a 29% discount to NAV.
Earlier this week, Grayscale CEO Michael Sonnenshein took to Twitter to argue that the recent launch of an inverse bitcoin futures ETF may be a positive sign for the sector and the eventual prospects of a spot bitcoin ETF.