Author: 0xjs@Golden Finance
After a long journey of more than ten years, the Bitcoin spot ETF was actually approved by the US SEC on January 10, 2024.
Whether it was fate or just a coincidence, on the same day 15 years ago, Bitcoin pioneer Hal Finney posted the first tweet about Bitcoin, "Running bitcoin".
As early as 2013, the Winklevoss twin brothers began to apply to the US SEC for a Bitcoin spot ETF, but in the following ten years of multiple crypto cycles, many traditional investment institutions such as VanEck, BitWise, Grayscale, Ark Invest, etc. continued to impact Bitcoin spot ETF applications, and even the US SEC approved the ProShares Bitcoin Futures ETF in October 2021, but the US SEC has always rejected all Bitcoin spot ETF applications.
It was not until June 2023 that traditional financial giants such as BlackRock and Fidelity joined the application for Bitcoin spot ETF, greatly accelerating the historical process.
On January 10, 2024, the Bitcoin spot ETF achieved a historic breakthrough and was finally approved by the US SEC.
This means that Bitcoin has truly entered mainstream society, which is of great significance to Bitcoin.
Bitcoin spot ETF application: a 10-year long journey
The application for a Bitcoin spot ETF is a long journey that lasted more than 10 years and spanned multiple crypto cycles.
2013: Bitcoin spot ETF begins
Winklevoss Bitcoin Trust Fund: As early as 10 years ago in July 2013, the Winklevoss twin brothers first submitted an application for the US Bitcoin spot ETF "Winklevoss Bitcoin Trust Fund", which was subsequently rejected by the US SEC.
After experiencing the crypto bull market in 2017, Bitcoin futures were listed on mainstream exchanges in the United States. As the value of Bitcoin increased and U.S. financial institutions gained crypto experience, financial institutions began to target Bitcoin ETFs.
Grayscale Bitcoin Trust GBTC: GBTC began raising funds as early as 2013, submitted an ETF application to the US SEC in 2016, and had dialogues with the US Securities and Exchange Commission for most of 2017, but later chose to withdraw the application.
The Winklevoss brothers submitted another Bitcoin spot ETF application in March 2017, which was rejected by the SEC again in July of the same year. The SEC rejected the application on the grounds that the lack of regulation in the Bitcoin market raised "concerns about potential fraudulent or manipulative behavior and practices."
VanEck Bitcoin Trust: In August 2018, asset management company VanEck and blockchain technology company SolidX jointly submitted an application for the VanEck Bitcoin Trust Bitcoin spot ETF, which was rejected by the SEC in September 2019.
Bitwise Bitcoin ETP Trust: In January 2019, Bitwise Asset Management submitted an application for a Bitcoin spot ETF. However, it withdrew the application in January 2020 due to concerns from the SEC.
Kryptoin Bitcoin Trust: Delaware-based Kryptoin first attempted to apply for a Bitcoin spot ETF in October 2019, intending to list it on NYSE Arca, but was rejected by the U.S. SEC at the end of the same year.
2021: Bitcoin spot ETF gradually gains institutional recognition
In the 2021 crypto bull market, as Tesla and other US-listed companies bought Bitcoin or accepted Bitcoin payments, Bitcoin as an asset has gained more recognition from financial professionals in the US, the world's largest financial market. There has been a small climax in the application of Bitcoin spot ETFs.
The first is the Purpose Bitcoin ETF listed on the Toronto Stock Exchange. Purpose Investments launched its first Bitcoin spot ETF product, Purpose Bitcoin ETF, in February 2021.
Valkyrie Bitcoin Fund: Asset management company Valkyrie submitted its first Bitcoin ETF application in January 2021. It was rejected by the US SEC at the end of 2021. But in early 2022, Valkyrie's Bitcoin mining ETF was successfully approved by the SEC. The Bitcoin mining ETF includes Bitcoin mining companies such as Argo Blockchain, Bitfarms, Cleanspark, Hive Blockchain and Stronghold Digital Mining.
WisdomTree Bitcoin Trust: New York-based asset manager WisdomTree filed an S-1 with the SEC in March 2021, proposing to list the WisdomTree Bitcoin Trust on the Cboe BZX exchange under the ticker BTCW. The SEC rejected WisdomTree’s application in late 2021. WisdomTree previously launched a Bitcoin ETF on the Swiss SIX exchange in 2019.
Ark21Shares ETF: In June 2021, Ark Invest, an investment company led by Wall Street star investor Cathie Wood, partnered with Swiss ETF provider 21Shares AG to submit an application for Ark21Shares ETF, which is intended to be traded on Cboe's BZX exchange with the stock code ARKB. However, its application was rejected in early 2022. Ark Invest then immediately reapplied and was rejected again in January 2023. Ark Invest submitted its application again on April 25, 2023.
Bitwise Bitcoin ETP Trust: Bitwise applied again in October 2021 and was rejected by the US SEC in November. The reason given by the US SEC is that the Cboe BZX Exchange "has not yet determined that other means are sufficient to prevent fraudulent and manipulative acts and practices."
Invesco Galaxy Bitcoin ETF: Galaxy Digital and Invesco jointly submitted a Bitcoin ETF, called Invesco Galaxy Bitcoin ETF, on September 22, 2021, which was rejected again at the end of 2021.
Kryptoin Bitcoin Trust: In April 2021, Kryptoin attempted to launch a Bitcoin ETF for the second time, but its approval was repeatedly postponed by the U.S. SEC, and its application was rejected at the end of 2021.
Global X Bitcoin Trust: Global X Digital Assets submitted an application to the SEC in July 2021 for a Bitcoin spot ETF, Global X Bitcoin Trust, to be traded on the Cboe BZX exchange. The SEC repeatedly postponed the approval, and the application was rejected by the SEC in March 2022.
Grayscale Bitcoin Trust GBTC: Grayscale became an SEC reporting company in January 2020. On November 29, 2021, Grayscale submitted an application to convert its GBTC into an ETF. On June 29, 2022, the US SEC rejected the application to convert the Grayscale Bitcoin Trust GBTC into an ETF. The next day, Grayscale filed a review application with the US Court of Appeals for the District of Columbia Circuit. The two parties started a litigation tug-of-war for more than a year until Grayscale won the US SEC in August 2023.
2023: A new wave of Bitcoin spot ETFs
First, Ark 21Shares launched its latest application in April 2023, followed by BlackRock’s entry in June 2023 and Grayscale’s victory over the US SEC, ushering in a turning point for Bitcoin spot ETFs and witnessing a new wave of Bitcoin spot ETFs.
Turning points: BlackRock’s entry, Grayscale’s victory in the SEC case, and Binance
In the history of Bitcoin spot ETF applications, the turning point was three landmark events in the second half of 2023.
1. Asset management giant BlackRock changes its attitude towards Bitcoin. BlackRock CEO Larry Fink changed his previous negative attitude towards Bitcoin after entering 2023, admitting that BTC is a global asset that can "surpass any currency". In June 2023, BlackRock joined the battle to apply for a Bitcoin spot ETF. On June 15, BlackRock submitted an S-1 registration statement to the U.S. SEC, officially launching its Bitcoin spot ETF iShares Bitcoin Trust application. BlackRock's spot Bitcoin ETF application is eye-catching because BlackRock has a near-perfect record in obtaining ETF approvals, with 255 out of 256 successful times.
In addition to Grayscale and Ark 21Shares, after BlackRock applied for Bitcoin spot ETF, Bitwise VanEck, WisdomTree, Invesco & Galaxy, Fidelity, Valkyrie, Global X, Hashdex, Franklin, and Pando have successively reapplied or newly joined the application, igniting a new round of Bitcoin spot ETF craze.
Except for Grayscale and Ark 21Shares, the other 11 Bitcoin spot ETFs will apply after June 2023
2. Grayscale has won a major victory in its lawsuit against the US SEC. After the US SEC repeatedly refused to transform the Grayscale Bitcoin Trust into a Bitcoin ETF, Grayscale chose to sue the US SEC. On August 29, 2023, the US Washington Circuit Court of Appeals approved Grayscale's petition. The court held that the US SEC adopted double standards for Bitcoin spot and derivatives, but could not explain the necessity of adopting such double standards. Therefore, the court required the SEC to treat Grayscale's spot ETF application equally and required the US SEC to review its rejection of its application to convert GBTC into a spot Bitcoin ETF.
Although the US SEC still chose to postpone the decision on the spot Bitcoin ETF several times before the deadline in the second half of 2023, due to the above two reasons, the market generally expects that the Bitcoin spot ETF will eventually be approved.
Therefore, in the second half of 2023, the crypto market repeatedly speculated on the news of Bitcoin spot ETF.
A typical example is the Cointelegraph fake news incident.
Cointelegraph fake news incident
On October 16, 2023, Cointelegraph published the fake news "US SEC approved BlackRock's iShare Bitcoin Spot ETF", as well as the news that several ETFs obtained stock codes after filing with DTCC, causing the Bitcoin price to jump from US$27,000 to US$35,000.
Although the news was false at the time, it turned out that the market believed it in advance.
3. Binance, the largest exchange in the crypto industry, pleaded guilty and reached a settlement with the U.S. government. On November 21, 2023, Binance reached a settlement with the U.S. Department of Justice, the Treasury Department, the CFTC and other departments, pleading guilty and paying a fine of more than $4 billion. The U.S. government can access Binance data and send supervisors. Although there is no U.S. SEC among these departments, this to a certain extent represents the U.S. government's partial supervision of the Bitcoin spot market. The main reason why the U.S. SEC has repeatedly rejected Bitcoin spot ETFs is the lack of supervision and market manipulation in the Bitcoin spot market. After Binance is supervised by the U.S. government, it may be able to partially eliminate the U.S. SEC's doubts. At the same time, if the U.S. SEC approves the Bitcoin spot ETF, it may even allow Wall Street to control the pricing power of the Bitcoin spot market.
Why the SEC has been slow to approve Bitcoin spot ETFs
Compared with the launch of Bitcoin futures ETF, the approval process of Bitcoin spot ETF can be described as protracted.
After ProShares' first Bitcoin futures ETF was approved in October 2021, five Bitcoin futures ETFs were allowed to be listed and traded within the following year. However, all applications for Bitcoin spot ETFs were rejected.
According to the SEC's previous rejection of several Bitcoin spot ETFs, the main reasons for the rejection were:
1. Spot cryptocurrencies are mainly traded on unregulated trading platforms, which are difficult to regulate, and there has long been a problem of market manipulation in the spot market.
This is also the main reason why the US SEC has repeatedly rejected Bitcoin spot ETFs. Bitcoin futures ETFs have fewer problems in this regard. First, the assets tracked by Bitcoin futures ETFs come from CME Bitcoin futures, and CME is regulated by the CFTC and has higher compliance. Secondly, the secondary market for the underlying assets of Bitcoin futures ETFs is more mature. CME is the largest derivatives exchange in the United States and even in the world. Compared with crypto CEXs such as Binance, OKX, and Coinbase, CME has established a complete trading system including pre-market, post-market, bulk, market making, clearing, and settlement. According to Bitwise's paper, CME's Bitcoin futures market is ahead of the spot market and is the main source of price discovery in the global Bitcoin market.
As for the Bitcoin spot market, things have changed a lot. In November 2023, Binance, the world's largest exchange, and its CEO pleaded guilty to the US government, and the US government has been able to obtain Binance data and regulate Binance.
2. The investment funds of BTC spot ETF include pensions and retirement funds, and the high volatility of the crypto market may cause investors to suffer huge losses.
3. Finally, the regulatory laws are different. Bitcoin futures ETFs are subject to the Investment Company Act of 1940, which has strict requirements on the governance structure, information disclosure, liquidity and valuation, leverage, etc. of fund issuers. However, this move goes against the original design and operation mechanism of ETFs, so Bitcoin futures ETFs can be listed and traded in exemption regulations without submitting proof. Bitcoin spot ETFs are governed by the Securities Exchange Act of 1934. According to Section 6(b)(1) of the Act, exchanges need to submit Form 19b-4 to explain in detail how the underlying market of ETFs prevents fraud and resists price manipulation to protect the interests of investors.
Bitcoin Spot ETF Application Process and Operation Mechanism
According to the Bitcoin spot ETF application process on the SEC website, the SEC begins reviewing Bitcoin spot ETFs after publishing the 19b-4 document (19b-4 Federal register) in the Federal Register.
The U.S. SEC can either approve or reject the application for a Bitcoin spot ETF at any time during the review period, or have three deadlines to delay whether to accept or reject its application.
These three deadlines (First, Second, Third Deadline) are three public responses from the U.S. SEC, with intervals of 45 days, 45 days, and 90 days respectively.
The longest resolution time of the U.S. SEC can be up to 240 days before the final decision to approve or reject is made (Final Deadline).
As for the detailed operation mechanism of Bitcoin spot ETF, please refer to Golden Finance’s previous article “Here is a guide to the operation mechanism of Bitcoin spot ETF”
History shines into the future: Bitcoin ETF vs. Gold ETF
People in the crypto industry attach great importance to Bitcoin spot ETFs. One of the main reasons is that they hope that the launch of Bitcoin spot ETFs will allow Bitcoin to repeat the trend of gold ETFs.
Bitcoin has long been called "digital gold". Bitcoin ETFs do have many similarities to gold ETFs. Holding physical gold is difficult for many investors, and custody of crypto assets is also a challenge for many investors today. In addition, the convenience, low cost and accessibility of issuers will attract new investors who would not have participated before to enter the gold or Bitcoin market.
The first gold ETF was launched in Australia in 2003. In 2004, the gold ETF Street Tracks Gold Trust (GLD) entered the US capital market and was listed on the New York Stock Exchange. Subsequently, gold experienced a seven-year bull market.
Gold prices over the past 30 years Source: goldprice.org
How much money will the passage of the Bitcoin spot ETF attract into the Bitcoin market? The Galaxy report estimates that $14 billion will flow into the Bitcoin market in the first year after the launch of the ETF, and its size will increase to $27 billion in the second year and $39 billion in the third year after its launch.
Conclusion
It is no exaggeration to say that the application process of Bitcoin spot ETF over the past 10 years is also the process of Bitcoin from holding high ideological resistance to traditional finance to integrating into the traditional financial system through financial institutions.
Whether Bitcoin deviates from its original intention or enters mainstream society, no matter how you look at it, Bitcoin can indeed reach more users now.
What Bitcoin will bring to people ultimately depends on how people view Bitcoin.
Lord Acton once said, "A man cannot be free suddenly without first preparing his mind for it."
The same goes for Bitcoin. If you do not agree with the concept behind Bitcoin, even if there are many Bitcoin users and no matter how valuable Bitcoin is, it may only go further and further away.
