“The intricate dance between innovation and regulation: Unraveling the cryptic process behind the SEC’s decision on Bitcoin ETF approval.”
The long-awaited bitcoin spot ETF is slowly coming to fruition, and investors are eagerly awaiting its arrival. But how exactly does this process work?
When Blackrock filed an application for a spot bitcoin ETF with the SEC, the crypto market saw this as a positive development. TradFi institutions entering the crypto space are crucial for mainstream adoption of cryptocurrencies. The enthusiasm for Blackrock’s ETF application has exceeded expectations, with bitcoin briefly jumping over $30,000 when news of its approval circulated. Although the news turned out to be false, it demonstrated the market’s shift towards institutional players and the optimism surrounding Blackrock’s success rate with previous ETFs.
But how are ETFs submitted, and why have bitcoin ETFs faced rejections and delays? The process involves the ETF sponsor filing a plan with the SEC to create an ETF. In recent applications, the sponsor and authorized participant (often a large institutional investor) are typically the same entity. If the application progresses, the authorized participant acquires the underlying assets, places them in a trust, and uses them to form ETF creation units. Despite the rejection of bitcoin ETF applications, there are thousands of successful ETFs in the US, emphasizing the unusual nature of these rejections.
Bitcoin spot ETFs differ from trust offerings like the Grayscale Bitcoin Trust. Trust products are generally not redeemable for the underlying asset, leading to price discrepancies. In contrast, spot ETFs operate as open-end fund systems, allowing for new share issuance and better tracking of bitcoin’s spot price. Spot ETFs also offer improved liquidity and tax treatment for investors, making them more appealing.
ETFs are approved by the SEC, and the Commission has approved many such products. However, the SEC, under Gary Gensler, has remained opposed to approving a spot bitcoin ETF. The reasons cited include bitcoin’s volatility, fraud and abuse in the crypto industry, and the need for further investor protections. Some crypto proponents argue that the lack of a spot ETF is evidence of anti-crypto sentiments among policymakers. As the SEC files enforcement actions against crypto firms, it has also been reluctant to allow new crypto or bitcoin products in the market.
As the potential for a spot bitcoin ETF grows, it is important for investors and entrepreneurs to understand the ETF process, the parties involved, and the reasons behind the delay in its approval.