Investors Awaiting SEC Ruling on Bitcoin ETF
Crypto investors are eagerly anticipating a ruling from the U.S. Securities and Exchange Commission (SEC) that is likely to approve the trading of a spot bitcoin exchange-traded fund (ETF). This comes more than a decade after previous attempts were rejected. Thirteen companies have filed for a spot bitcoin ETF, including Grayscale Bitcoin Trust, Ark/21Shares Bitcoin Trust, Bitwise Bitcoin ETF Trust, BlackRock Bitcoin ETF Trust, VanEck Bitcoin Trust, and WisdomTree Bitcoin Trust.
How the SEC Will Proceed
The applications for a spot bitcoin ETF consist of two components:
- A 19b-4 filing: This form notifies the SEC of a proposed rule change by exchanges such as NYSE, Nasdaq, and Cboe. The exchanges must provide rules explaining how the product will trade, and the SEC must approve these changes before the product can be traded. The deadline for the Ark/21Shares Bitcoin Trust filing is January 10.
- Approval of S-1: This filing registers a new security with the SEC and provides information about the specific security. Each company filing for a spot bitcoin ETF has differences in how their product might be structured. The SEC is expected to separately approve the S-1 applications once the 19b-4 filings are approved.
Wide Spread in Fee
With 13 similar bitcoin ETF products being filed, there is substantial interest in understanding the fee structure. Fidelity’s Wise Origin Bitcoin Fund plans to charge 39 basis points (0.39%), while Invesco’s Galaxy Bitcoin ETF will have an expense ratio of 59 basis points for the initial six months and first $5 billion in assets. Ark/21Shares and Valkyrie will charge 80 basis points. Grayscale Bitcoin Trust currently charges 2% but intends to lower the fee once its application to convert to a bitcoin ETF is approved.
Uncertainty Surrounding Crypto Regulation
The SEC’s Chair, Gary Gensler, has been involved in legal battles with the crypto industry. Last summer, the U.S. Court of Appeals ruled in favor of Grayscale Bitcoin Trust and stated that if the SEC approved a futures-based bitcoin product, it logically had to approve a spot-bitcoin product as well. While bitcoin has been classified as a commodity, there are no such rulings for other cryptocurrencies.
The SEC has relied on enforcement actions to regulate cryptocurrencies, claiming that many of them are securities falling under its purview. The SEC has ongoing cases against Coinbase and Binance, two major crypto players, alleging violations of registration rules and engaging in deceptive practices.
Hot Take: Crypto ETF Approval Could Drive Market Growth
If the SEC approves the trading of a spot bitcoin ETF, it could have significant implications for the crypto market. A regulated ETF would provide more accessibility and legitimacy for investors looking to enter the crypto space. It could also attract institutional investors who have been hesitant due to regulatory uncertainties. The approval would likely lead to increased liquidity and potentially drive up the price of bitcoin. However, it remains to be seen how the SEC will proceed and which companies’ applications will be approved.
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