The cryptocurrency industry is holding its breath this week as the US Securities and Exchange Commission (SEC) faces a January 10 deadline to approve or deny several spot bitcoin exchange-traded fund (ETF) applications.
Background
Bitcoin ETFs have long been sought after by the crypto industry as a way to expand access and adoption of digital assets to mainstream investors. Unlike buying actual bitcoin, investors can purchase shares of a bitcoin ETF that tracks the price of bitcoin, without having to deal with cryptocurrency exchanges or wallets.
While futures-based bitcoin ETFs already trade in the US, spot bitcoin ETFs have so far eluded approval. The SEC has consistently denied past applications, citing concerns around volatility, manipulation, and adequate oversight.
However, under SEC Chair Gary Gensler, there appears to be increasing openness to eventually approve spot bitcoin ETFs. Several amended filings have addressed the SEC’s past concerns. With over a dozen applications now pending, the industry sees the best chance yet for the breakthrough product.
Final Filings Submitted as Deadline Looms
Last Friday marked the deadline for all spot bitcoin ETF applicants to submit a final “Form 19b-4” filing to amend their proposed rule change.
Major players in the ETF space like Valkyrie, Galaxy Digital, and Grayscale submitted updated proposals. Other hopefuls include asset managers WisdomTree, Bitwise, and ARK Invest.
In total, over a dozen issuers are vying to be the first to launch a spot bitcoin ETF in the US.
Under SEC rules, a decision must be provided within 240 days of an ETF application publish date. The looming January 10 deadline applies to several filers. While the SEC could punt with another extension, industry experts believe an imminent ruling is likely.
“It seems everything is lined up for spot Bitcoin ETFs to get approved in mid-January when the 240-day timer runs out,” said James Seyffart, ETF analyst at Bloomberg Intelligence.
What Approval Would Mean for Crypto
The market impact of SEC approval is expected to be profound. Some estimates predict over $50 billion could flow into spot bitcoin ETFs in the first year.
“A spot Bitcoin ETF opens the floodgates for massive institutional money to flow into the digital asset ecosystem,” said Leah Wald, CEO at Valkyrie Investments, one of the applicants.
By allowing mainstream investors easy access through normal brokerage accounts, bitcoin ETFs are seen as a way to speed adoption and maturity of the nascent crypto asset class.
Bloomberg analyst Eric Balchunas explained: “The portfolio managers say an ETF is going to make it a lot easier to handle instead of going to Coinbase and Kraken and really provide validation that regulators are comfortable with bitcoin as an asset.”
Mixed Reactions and Words of Caution
In the lead up to the high-stakes decision, market experts, investors and policymakers have weighed in with varying opinions.
Senator Elizabeth Warren published an open letter to Chair Gensler this week, arguing that spot bitcoin ETFs would “allow more investors to be exposed to crypto without sufficient protections.” She urged further consumer safeguards before any approval.
Meanwhile, crypto advocate Anthony Scaramucci tweeted optimistically about approval being imminent. His Skybridge Capital filed for a spot bitcoin ETF last week. Other investors shared his bullish sentiment.
However crypto futures exchange FTX US warned in a blog post that excitement may be premature. While approval odds seem better than past attempts, potential delays or rejections could still disappoint markets and cause short term volatility.
Nonetheless, momentum does appear to be accelerating towards an eventual landmark decision to give the green light. Most see it as inevitable, with the only question being if approval lands this month or gets pushed back slightly.
“It’s basically done at this point,” Bitwise CIO Matt Hougan told Yahoo Finance. “We think we’ve addressed all of the SEC’s comments and concerns.”
Now all eyes turn to the SEC in anticipation of their ruling, which could arrive any day and promises to have resounding impact either way.
What Comes Next If Approved
While the long wait for a spot bitcoin ETF nears its climax, some wonder if the product will live up to years of hype and heightened expectations.
Approval would undoubtedly spur massive trading volumes initially. However, those flows may not directly translate to a sustained bitcoin price increase, according to Bybit CEO Ben Zhou. He believes institutions eye ETFs primarily for the large management fees, not coins themselves.
Once the landmark product launches, focus may shift to issues around fees charged and whether asset flows materialize as predicted. Galaxy Digital’s application notably offers a 0% management fee model to attract investors. Rivals may have to compete aggressively on expenses.
There also remains debate around how much new investor money will enter bitcoin through approved ETFs vs money rotated from existing crypto investments. For example, Grayscale’s popular Bitcoin Trust (GBTC) may see assets migrate towards newly launched spot bitcoin ETFs. Some analysts estimate over $8 billion could flow out of GBTC.
While predictions vary on the ultimate impact, no one disputes that SEC approval would remove a massive regulatory roadblock. The chance to bring trusted bitcoin exposure to everyday investors promises to accelerate crypto adoption substantially. Even if initial mania fades, the long-term implications appear profoundly bullish.
| ETF Applicant | Assets Under Management |
|---|---|
| Grayscale | $24 billion |
| Galaxy Digital | $2.2 billion |
| Valkyrie | $6 billion |
| SkyBridge Capital | $2.3 billion |
Table showing sample of leading asset managers applying for spot bitcoin ETF
Final Take
After years of setbacks and delays on the journey towards SEC approval, spot bitcoin ETFs now stand closer than ever to becoming reality. An imminent decision promises to be a watershed moment for cryptocurrency legitimacy and mainstream adoption.
While uncertainty lingers around exactly if or when the breakthrough product launches, optimism continues to build. Most industry experts call approval at this point more likely than not.
“It does feel like a matter of when not if,” said Bitwise’s Hougan.
When that “if” seemingly transitions to “when” in the coming days, the crypto ecosystem may finally get the win its long been waiting for. Even if prices react wildly in the short term, approval would unlock massive potential for positive network effects over the longer horizon.
So as the industry collectively holds its breath this week, the risk-fraught promise of crypto appears on the cusp of taking another leap towards the mainstream. An impending bellwether decision looms large.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
