There are many applicants for Bitcoin spot ETFs. They have been playing games with the U.S. Securities and Exchange Commission (SEC) for years, but the SEC has never approved it. This time, the deadline for the SEC to respond to many applicants is from January 5 to 10, 2024, which is within the next 20 days.
As of now, 13 issuers have submitted applications for Bitcoin spot ETFs to the SEC, including Grayscale, BlackRock, Fidelity, VanEck, ARK, 21Shares and Bitwise.
A Bitcoin spot ETF is a fund product that is designed to track Bitcoin price movements and allow investors to trade it through the securities market.
Analysts pointed out that once the Bitcoin spot ETF is passed, it will allow investors to gain exposure to cryptocurrencies by purchasing stocks without the need for a digital wallet or trading account, attracting a large number of traditional investors and "having a significant positive impact on the cryptocurrency market."
In order to increase the success rate of approval, BlackRock is stepping up the revision of application documents and has made the latest six important revisions to the application in accordance with the requirements of the SEC and Nasdaq, including agreeing to a cash redemption model, trying to allay the SEC's concerns about market risks and price manipulation.
Another positive signal of approval comes from the SEC’s own relaxed attitude.
In an interview with CNBC on Dec. 14, SEC Chairman Gary Gensler said he would “reevaluate” his stance and “take a more cautious and favorable approach to Bitcoin ETFs.”
BlackRock agrees to cash redemption
So far, the SEC has held a total of about 24 meetings with applicants for Bitcoin spot ETFs. The deadline for the SEC to approve or not is January 5 to 10 next year. Wall Street predicts that in order to maintain market fairness, it is very likely that multiple ETFs will be approved at the same time.
On December 19th, local time, the SEC, Nasdaq and BlackRock met again to discuss the modification of the Bitcoin ETF application around Nasdaq Rule 5711(d). This was the second meeting between the SEC, Nasdaq and BlackRock within a month.
Section 5711(d) contains strict regulatory details, mainly for commodity-based trust shares listed and traded on Nasdaq. It covers the requirements for initial listing and continued listing, including regulatory and compliance measures aimed at protecting the integrity of the market and preventing fraudulent activities in crypto transactions.
On the previous day, December 18, BlackRock had resubmitted its application for the Bitcoin spot ETF product "iShares Bitcoin Trust" to the SEC and made six important revisions to meet the SEC's broader regulatory requirements.
BlackRock Makes Six Changes to iShares Bitcoin Trust
Among them, Coinbase's role has changed from "prime broker" to "primary execution agent." After the change, Coinbase, as the primary execution agent, will process buy and sell orders on behalf of the ETF product, rather than providing services related to the primary broker. At present, much of the wording in this section remains consistent with the last submitted document.
At the same time, BlackRock has restructured the roles and compliance responsibilities within its ETF products, replacing “market makers” with “bitcoin counterparties,” suggesting that the entities involved in bitcoin trading may expand and that a more active approach to trade execution will be taken.
In the previous meeting in November, BlackRock also agreed to include a "co-regulatory agreement" to mitigate the risk of market manipulation associated with crypto trading, which is a matter of great concern to the SEC. At this meeting, BlackRock also provided a PPT detailing the two models of "physical redemption" and "cash redemption".
“Cash redemption” is the solution preferred by the SEC
The difference between these two methods lies in whether the fund shares correspond to Bitcoin or US dollar cash during the creation and redemption process of the ETF.
Among them, the "physical model" links fund shares to the Bitcoin transaction 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 using US dollars to isolate the US stock market and the Bitcoin market. This is also the solution preferred by the SEC.
For the SEC, using a cash model may make it easier to regulate the Bitcoin spot market and integrate it into the traditional financial system. In this way, market makers use cash settlement, and each transaction cannot escape the supervision of tax authorities.
According to Fox Business, BlackRock has made SEC approval of its Bitcoin spot ETF a key priority for the company. The company's founder and CEO Larry Fink called Bitcoin "an international asset" and "a store of value" comparable to the long-term status of gold.
SEC to 're-examine' 8-12 applications
In addition to BlackRock, several other Bitcoin spot ETF applicants are also stepping up discussions with the SEC to make the final sprint.
Hashdex has met with the SEC again this week; Wisdomtree has submitted the fourth revised Bitcoin spot ETF prospectus (S-1 filing) to the US SEC; and Ark 21Shares' Bitcoin Spot ETF (ARKB) has also been added to the Depository Trust & Clearing Corporation (DTCC) website.
In a recent interview with CNBC on December 14, SEC Chairman Gary Gensler expressed his re-evaluation of the SEC’s position on Bitcoin ETFs. “As you may know, we have rejected some of these applications in the past, but the courts in the District of Columbia have expressed their opinions on this, so we are re-examining this issue based on these court rulings.”
Gary also revealed that "there are about 8 to 12 applications," and he also emphasized, "I am the chairman of the committee and I can't judge anything in advance. So, the process is ongoing."
Gary alleged that the court ruling that the SEC was affected by was the lawsuit between the SEC and Grayscale.
In 2021, Grayscale applied to convert its GBTC Trust into an ETF, but was rejected by the SEC on the grounds of "failure to prevent market manipulation", etc. Grayscale then appealed to the court, saying that the SEC's actions may have violated the U.S. Administrative Procedure Act because the SEC had approved the Bitcoin futures ETF before making this decision, and there is no essential difference in risk between the futures ETF and Grayscale's products.
On August 29 this year, the Washington, D.C. Circuit Court of Appeals ruled in favor of Grayscale and required the SEC to re-examine Grayscale's application. Since then, the SEC has not appealed the court's ruling. This is also considered by the financial community to "increase the possibility of ETF approval."
After this, the SEC's rejection of Bitcoin spot ETF applications seemed to have softened.
“This admission suggests that the SEC’s attitude may be changing, potentially making it more willing to approve such applications,” Gary said in an interview with CNBC. “The recognition of legal precedent and the continued review of many applications suggest that the SEC is taking a more cautious and favorable approach to Bitcoin ETFs.”
The latest statement by the current SEC chairman immediately encouraged practitioners in the crypto industry, who actively expressed their expectations and believed that the approval of Bitcoin spot EFT would have a positive impact on the overall crypto market.
MicroStrategy Executive Chairman Michael Saylor believes that the market should not underestimate the importance of the upcoming spot Bitcoin ETF, "which may be the biggest development on Wall Street in 30 years"
Investment research firm Fundstrat predicts that once the Bitcoin spot ETF is approved, the price of Bitcoin will jump more than five times from its current level, exceeding $150,000 or even reaching $180,000.
The reason why institutions are so optimistic is largely because the approval of the Bitcoin spot ETF may bring incremental capital inflows to the market.
"We expect more than $2.4 billion to flow into the newly approved U.S. Bitcoin spot ETF market in the first quarter of 2024 to sustain the rise in Bitcoin prices," said Matthew Sigel, head of digital asset research at VanEck. There is a possibility of volatility, but Bitcoin prices are unlikely to fall below $30,000 in the first quarter of 2024.”
On December 21, CryptoQuant analysts also stated in a report that the expected demand for Bitcoin from multiple U.S. spot ETFs, the upcoming halving, and the growth of the broader stock market amid interest rate cuts could push Bitcoin to a high of $160,000, and the bull market could begin in 2024.
With the unremitting efforts of many Bitcoin spot ETF applicants such as BlackRock, the prospect of successfully overcoming regulatory obstacles is more promising.
