Sec delays on Grayscale’s Bitcoin ETF proposal

TL;DR

In October 2021, Grayscale Bitcoin Trust (GBTC) proposed to convert some of its shares into a Bitcoin Spot ETF. However, the US Securities and Exchange Commission (SEC) delayed response to the proposal by 45 days in December. In February 2022, SEC also delayed their response, citing their doubts about the ability of the ETF to ward off share manipulation. This time, they have consulted the public by requesting comments on the issue within 21 days.

Exchange-Traded Funds (ETF) are securities traded in the stock exchange; they are similar to mutual funds in that there is a pool of investments such as stocks, commodities, and bonds. Bitcoin ETF is an investment vehicle that allows investors to track bitcoins and invest without actually trading Bitcoins. Considering the unregulated nature of Bitcoins, the SEC has been l antagonistic to Bitcoin ETFs. During the DACOM Summit 2021, Gary Gensler, the Chairman of the SEC, expressed pessimism about the nature of Bitcoins and other cryptocurrencies. When asked about the attitude of the SEC towards spot Bitcoin ETFs, he declined to comment on the issue stating the commission is still evaluating applications.

Observing the timeline of the response of the SEC to spot Bitcoin ETF approval, there is a bias towards Bitcoin Futures ETF. It is not surprising since the SEC Chairman has publicly stated his bias towards Bitcoin Futures ETF at different times. The delay of the approval of the proposal of the Grayscale Bitcoin ETF is not a strange occurrence. SEC had previously rejected spot Bitcoin ETF proposals from Kryptoin, VanEck, WisdomTree, and Fidelity.

In this post, we will explore the peculiarities of Bitcoin ETF and Grayscale Bitcoin Trust.

Keywords: spot Bitcoin ETF, Bitcoin Futures ETF, grayscale Bitcoin trust, Bitcoin ETF approval, SEC, grayscale Bitcoin ETF.

What is a Bitcoin ETF?

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Since the 1990s, ETFs have become a popular investment vehicle due to their ease of use. If you combine that with the rise of Bitcoin in modern times, you have a new wave investors will want to ride. Bitcoin ETFs are a way of investing in Bitcoin without actually holding Bitcoin; like ETFs, they allow investors to track the performance of Bitcoin.

The first Bitcoin ETF to start trading in the US was the Bitcoin Strategy ETF (BITO) provided by Proshares in October 2021. The ETF is an investment in Bitcoin Futures, as spot Bitcoin ETFs have been unable to gain the approval of the SEC. Within a single day of trade, the BITO saw a turnover of $1.2 billion, making it the fastest ETF to hit the $1 billion mark in history. Valkyrie Bitcoin Strategy ETF is another ETF that hit the market days after BITO went public. At the moment, every new Bitcoin ETF that has received approval from the SEC is invested in Bitcoin Futures. Apart from the Proshares ETF that hit the ground running hard, other ETFs have roused the same amount of interest.

Bitcoin ETF Approval

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The origin of Bitcoin ETFs that have sought approval since the Winklevoss Bitcoin Trust in 2014, the application was swiftly rejected by the SEC amid reservations about the unchartered waters of cryptocurrency. However, with the increasing growth of cryptocurrency has come the need for cryptocurrency investment products. In 2021 alone, 37 of such products were launched with 3 of them specializing in Bitcoin Futures. Currently, there are about ten such products that are spot Bitcoin ETFs. These products have either been rejected approval or have their responses delayed. The most prominent of them all is Grayscale Bitcoin Trust (GBTC), the Bitcoin Trust wants to convert some of its shares to a spot Bitcoin ETF but its approval has been delayed by the SEC.

One of these Bitcoin ETFs, Fidelity Advantage, has begun trading on the Toronto Stock Exchange in Canadian Dollars and US Dollars. At the moment, fingers are crossed to see if 2022 will be the year where the SEC opens their heart to Spot Bitcoin ETFs as they have begun doing for Bitcoin Futures.

Here is a timeline of some Bitcoin ETFs that have sought approvals

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December 30, 2020- VanEck Digital Assets applied to start a Bitcoin Trust, which was declined. August 9, 2021, the firm resubmitted the application for a Bitcoin Strategy ETF. The application was successful, and the ETF was launched on the 15th of November, 2021.

January 22, 2021- Valkyrie Digital Assets applied to start a Bitcoin Fund initially rejected; they resubmitted the application for a Bitcoin Strategy Fund on 11th August 2021, which was approved and launched on 22nd of October.

February 16, 2021- NYDIG Asset Management applied for a Bitcoin ETF. SEC's final decision will come on the 16th of March 2022.

March 11, 2021- WisdomTree Digital Commodity Services applied to start a Bitcoin Trust; it was rejected on the 2nd of December 2021. They amended their application and refiled it six days later, on the 8th of December.

April 9, 2021- Kryptoin Investment Advisors applied for approval of a Bitcoin ETF. The application was rejected on the 22nd of December, 2021.

April 12, 2021- Galaxy Digital Capital Management applied to start a Bitcoin ETF; the application was changed to become a Bitcoin Strategy ETF (effectively investing in Bitcoin Futures). The application was approved and launched on the 31st of October, 2021.

August 4, 2021- ProShares Advisors filed an application for a Bitcoin Strategy ETF that was approved. The ETF was launched on the 19th of October 2021, effectively making it the first Bitcoin ETF to be launched.

October 19, 2021- Grayscale applied to convert the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Currently, the SEC accepts comments until the 11th of March, 2022.

Grayscale Bitcoin Trust

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Since its public listing in 2013, the Digital Currency Group subsidiary has grown to become the Bitcoin Trust with the largest market capitalization. However, on October 19, 2021, the company applied to the SEC to become a spot Bitcoin ETF.

The SEC has not assented approval to this request as they hold a more favorable stance to Bitcoin Futures than Bitcoin itself. In response to SEC's more favorable perspective on Bitcoin Futures, GBTC maintained that regulations of the 1940 Act that cover for Exchange-Traded Products (ETPs) do not allow for treating Bitcoin Futures ETF differently from Spot Bitcoin ETF. The 15 pages letter was sent after the SEC rejected the application of one of the ETFs.

Will Grayscale Bitcoin Trust become the first-ever publicly traded spot Bitcoin ETF?



Author: Gate.io Observer: M. Olatunji
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