After 24 meetings and 6 major revisions, there are 20 days left until the final decision on the Bitcoin spot ETF, and major applicants are entering the final sprint phase.
(Background:
SEC releases key signal for ETF: “Bitcoin spot ETF” can only be launched by deleting the implication of physical redemption.)
There are many applicants for the Bitcoin spot ETF, and 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 SEC’s deadline for responding to multiple applicants is between January 5th and 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 point out that once the Bitcoin spot ETF is approved, it will allow investors to acquire cryptocurrency positions through stock purchases without the need for a digital wallet or trading account, which will attract a large number of traditional investors and have a significant positive impact on 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 6 important modifications based on the requests of the SEC and Nasdaq, including agreeing to a cash redemption model, trying to dispel concerns about market risks and price manipulation.
Another positive signal for approval comes from the SEC’s own loosening attitude. In an interview with CNBC on December 14th, SEC Chairman Gary Gensler stated that the SEC will “reassess” its position and take a more cautious and favorable approach to Bitcoin ETFs.
So far, the SEC has held a total of about 24 meetings with the applicants for the Bitcoin spot ETF. The final deadline for approval or rejection is between January 5th and 10th next year. Wall Street insiders predict that multiple ETFs are likely to be approved simultaneously in order to maintain market fairness.
On December 19th local time, the SEC, Nasdaq, and BlackRock met again to discuss the modifications to the Bitcoin ETF application regarding Nasdaq Rule 5711(d). This is the second meeting between the SEC, Nasdaq, and BlackRock within a month.
The content of Rule 5711(d) is a strict regulatory rule that mainly targets commodity-based trust shares listed and traded on Nasdaq. It covers requirements for initial listing and continued listing, including regulatory and compliance measures aimed at protecting market integrity and preventing fraudulent activities in cryptocurrency transactions.
On December 18th, a day before, BlackRock had already resubmitted the application for its Bitcoin spot ETF product, “iShares Bitcoin Trust,” to the SEC and made 6 important modifications to meet broader regulatory requirements.
Coinbase’s role has changed from “primary broker” to “primary execution agent.” After the change, Coinbase, as the primary execution agent, will handle buy and sell orders for the ETF product, rather than providing services related to primary brokers as before. Currently, much of the wording in this part remains consistent with the previous submission.
At the same time, BlackRock has also adjusted the roles and compliance responsibilities within its ETF product. It replaced “market maker” with “Bitcoin trading counterparty,” indicating a potential expansion of entities involved in Bitcoin trading and a more proactive approach to trading execution.
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 major concern for 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 modes is whether the fund shares correspond to Bitcoin or U.S. dollars in the creation and redemption process of the ETF. The “physical model” links the fund shares to the Bitcoin trading price, and the issuer does not need to consider price fluctuations during the delivery process. The “cash redemption” model adds a “cash custodian,” which is equivalent to creating a separation between the U.S. dollar and Bitcoin markets, which is 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 will have cash settlements, and every transaction will be subject to supervision by tax authorities.
According to Fox Business, BlackRock has made the approval of its Bitcoin spot ETF a key priority for the company. The founder and CEO, Larry Fink, referred to Bitcoin as an “international asset” and a “store of value” comparable to gold.
SEC to “reassess” 8-12 applications
In addition to BlackRock, several other Bitcoin spot ETF applicants are intensifying their discussions with the SEC for the final sprint.
Hashdex has met with the SEC again this week, Wisdomtree has submitted its fourth amended Bitcoin spot ETF prospectus (S-1 filing) to the SEC, and Ark 21Shares’ Bitcoin spot ETF (ARKB) has been added to the Depository Trust & Clearing Corporation (DTCC) website.
In the latest interview with CNBC on December 14th, SEC Chairman Gary Gensler stated that the SEC is “reassessing” its position on Bitcoin ETFs:
Gary also revealed that there are approximately 8 to 12 applications, and he emphasized, “I am the chairman of the commission, and I cannot make advance judgments on anything. So, the process is underway.”
Gary referred to the impact of SEC’s court ruling in the lawsuit with Grayscale as one of the reasons for the SEC’s reevaluation. 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 because the SEC had already approved Bitcoin futures ETFs before making this decision, and there is no fundamental difference in risks between futures ETFs and Grayscale’s product.
On August 29th this year, the Washington D.C. Circuit Court of Appeals ruled in favor of Grayscale, requiring the SEC to reexamine Grayscale’s application. Since then, the SEC has not appealed the court’s ruling. This has been seen in the financial industry as “increasing the possibility of ETF approval.”
Afterward, the SEC’s attitude towards Bitcoin spot ETF applications seemed to become more relaxed.
In the CNBC interview, Gary stated:
This latest statement from the current SEC chairman immediately inspired professionals in the crypto industry, who are actively displaying their expectations that the approval of the Bitcoin spot ETF will have a positive impact on the overall cryptocurrency market.
Michael Saylor, Executive Chairman of MicroStrategy, believes that the market should not underestimate the significance of the upcoming spot Bitcoin ETF, calling it the “biggest development on Wall Street in 30 years.”
Fundstrat, an investment research firm, predicts that once the Bitcoin spot ETF is approved, the Bitcoin price will surge to over five times its current level, exceeding $150,000 and even reaching $180,000.
Institutions are optimistic mainly because the approval of the Bitcoin spot ETF is expected to bring incremental capital inflows to the market.
Matthew Sigel, Head of Digital Assets Research at VanEck, believes:
On December 21st, CryptoQuant analysts also stated in a report that the expected 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 could 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 is becoming more promising.