The US Securities and Exchange Commission (SEC), the regulatory body responsible for approving spot cryptocurrency exchange-traded funds (ETFs), appears to be edging closer to granting permission for these investment vehicles after years of deliberation.
A significant development occurred when BlackRock, the world’s largest asset management firm, submitted its application for a Bitcoin ETF in June.
This move has reignited investor interest both within and beyond the cryptocurrency sphere.
Notably, BlackRock also established a “surveillance-sharing agreement” with Coinbase, a leading cryptocurrency exchange, possibly indicating the SEC’s receptiveness to ETF applications under such arrangements.
Numerous companies, including ARK Invest under the leadership of CEO Cathie Wood, have filed for crypto ETFs with the SEC. ARK 21Shares applied to list its spot Bitcoin ETF in May 2023.
However, the SEC recently extended the review period by 21 days until August 11, inviting public comments on the proposal as per its guidelines.
The SEC holds the authority to delay ETF applications for up to 240 days, a period that includes public input.
Nevertheless, the SEC has not yet approved any spot Bitcoin ETF proposal from any US firm. It only began accepting investment products linked to Bitcoin futures in October 2021.
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The challenge lies in the nature of these investment vehicles: Bitcoin futures-linked ETFs allow investment without direct exchange participation, whereas spot Bitcoin ETFs involve holding the cryptocurrency directly within a fund.
Early attempts to gain SEC approval for crypto ETFs date back to 2013 when Gemini co-founders Cameron and Tyler Winklevoss applied for a Bitcoin Trust listing.
However, these attempts were rebuffed, showcasing the evolving regulatory landscape.
Stuart Barton, co-founder and CIO of Volatility Shares, the firm behind a leveraged Bitcoin futures ETF listing, revealed that the SEC application process involves negotiations and suggested that smaller firms might have an advantage in pursuing spot crypto ETFs.
Barton emphasized that significant companies have not substantially advanced the argument for ETF approval.
Prominent asset management firms like BlackRock, ARK Invest, Bitwise Asset Management, VanEck, WisdomTree, Invesco, Galaxy Digital, Fidelity, and Valkyrie currently have spot Bitcoin ETF applications under SEC review.
The SEC’s cautious stance might stem from the complex nature of the US crypto market, which requires further regulatory clarity and oversight.
The SEC’s ongoing enforcement actions against Coinbase, Binance, and Ripple, alongside penalties imposed on other firms, indicate a need for increased regulation.
US legislators are actively considering laws to define the roles of the SEC and Commodity Futures Trading Commission (CFTC) in overseeing digital assets.
Court decisions will likely play a role in shaping regulations, particularly following the SEC vs. Ripple case, where a judge determined that XRP was not a security.
Industry analysts suggest that the probability of a US spot Bitcoin ETF approval is around 65%, partly influenced by BlackRock’s application.
Speculation also abounds regarding potential simultaneous approvals to prevent any single company from gaining an advantage.
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