The United States Securities and Exchange Commission (SEC) — the financial regulator with the final say over allowing a spot cryptocurrency exchange-traded fund (ETF) — may be moving closer to giving the investment vehicle the green light after several years of applications.
In June, the world’s largest asset management firm, BlackRock, added its application to the bundle of Bitcoin (BTC) ETF filings currently being reviewed by the SEC, creating renewed interest among investors in and out of the crypto space. The company later added a “surveillance-sharing agreement” with cryptocurrency exchange Coinbase following reports the SEC could be more open to accepting an ETF application under such conditions.
BlackRock is one of many firms with crypto ETF applications in the SEC pipeline. ARK Invest, under CEO Cathie Wood, filed to list its ARK 21Shares spot Bitcoin ETF in May 2023 and received the most recent delay from the SEC on Aug. 11, pushing back the deadline another 21 days as the regulator opens the proposal to public comments.
Under SEC guidelines, the federal regulator has the authority to delay ETF applications for up to 240 days — by opening them to public comment or otherwise — from the first filing in the Federal Register. Even so, the SEC has never approved a spot Bitcoin ETF proposal from any firm in the United States and only started accepting investment vehicles tied to BTC futures in October 2021.
One of the challenges behind getting the SEC to allow a spot crypto ETF may be the nature of the investment vehicle. Bitcoin futures-linked ETFs also enable individuals and companies to invest in the crypto asset without an exchange, while a spot BTC ETF could involve holding Bitcoin within a fund for more direct investment.
Gemini co-founders Cameron and Tyler Winklevoss were the first to apply for a crypto exchange-traded product listing using their Bitcoin Trust in July 2013, when many regulators might not have even understood digital currencies and the SEC ultimately rejected the application.
Stuart Barton, co-founder and chief investment officer of Volatility Shares — the firm behind the listing of a leveraged Bitcoin futures ETF in June — told Cointelegraph its process of applying with the SEC involved back-and-forth negotiations. The regulator proposed changes to disclosure documents but was generally “cooperative.” He speculated that smaller firms might have more of an edge with the SEC on a spot crypto ETF offering.
“Big companies have been doing the same thing they’ve been doing for years,” said Barton. “Yeah, there are new applications, new filings… they haven’t really moved the argument along.”
At the time of publication, major asset management firms with spot Bitcoin ETF applications under review by the SEC include BlackRock, ARK Invest, Bitwise Asset Management, VanEck, WisdomTree, Invesco and Galaxy Digital, Fidelity and Valkyrie. With the maximum 240-day extension window available to the SEC, the final deadline for ARK’s Bitcoin ETF is in January 2024, while approval or disapproval of all the other firms’ offerings could come as late as March 2024.
Part of the SEC’s seeming reluctance to sign off on a spot crypto ETF could be from the nature of the crypto market in the United States, which, while regulated, has left many lawmakers and industry leaders calling for greater clarity and oversight. The SEC is currently pursuing enforcement cases against Coinbase, Binance and Ripple, and it has already levied financial penalties against firms such as Bittrex. Barton added:
“Both sides are going to bend a little bit. I think the SEC are going to have to be a little bit more open-minded […] There’s going to be a lot more bending, I think, from the crypto side.”
U.S. lawmakers are currently considering legislation to better define the roles the SEC and Commodity Futures Trading Commission (CFTC) should have in regulating digital assets. In addition, both the regulator and industry may have to consider court decisions until regulations are better defined, as a judge in the SEC vs. Ripple case largely ruled that XRP was not a security, creating ramifications for everyone dealing with crypto in the United States.
“[The ETF application process] puts the SEC in an incredibly powerful position,” said Barton. “Gensler has a great amount of sway in that; the political makeup of the commission definitely influences that.”
As of August, certain analysts have suggested that the chances of a spot Bitcoin ETF being approved in the U.S. are close to 65% based partly on BlackRock’s application. Both Cathie Wood and Grayscale — the asset manager currently suing the SEC over its ETF application — have hinted that the regulator could approve multiple applications simultaneously to avoid any company having an advantage over another.