“‘When is the Commission going to approve a Bitcoin exchange-traded product?’ is one of the most frequent questions I get.” – Hester Peirce, SEC commissioner
Plenty of U.S. investors would love to see a spot Bitcoin (BTC) exchange-traded fund (ETF), but the only opinions that matter are those of the five members of the Securities and Exchange Commission.
And they’re not having it.
The SEC hasn’t lacked for opportunity. It’s rejected more than two dozen spot Bitcoin ETFs over the past nine years, including more than half a dozen this year alone.
And yet, approval of a spot Bitcoin ETF is a big deal because it will profoundly energize demand by creating a much easier path for both retail and institutional investors.
After all, it did the same thing for gold – and it would “unlock” Bitcoin as an investable asset for countless investors.
I’ll show you how…
A Bitcoin ETF Would Open the Retail Investing “Floodgates”
“For retail investors who are less tech-savvy, the main hurdles of investing directly into crypto include creating a wallet and trading on exchanges and platforms they are not familiar with. Accessing crypto by investing in an ETF would solve these problems,” Hany Rashwan, CEO of crypto investing firm 21Shares, told Cointelegraph. “On the institutional front, investors are excluded due to investment restrictions and regulatory uncertainty.”
Nic Carter, general partner at Castle Island Ventures and co-founder of Coin Metrics, told Bloomberg last year that a spot Bitcoin ETF “would be “the hottest commodity ETF launch of all time, attracting probably well over $100 billion in assets within a month or so.”
As I mentioned, we also have historical precedent. Consider what happened after the debut of the first gold ETF in November 2004. Gold was trading at about $40 an ounce. Two years later the price of gold was up about 33%. Dozens more gold ETFs flooded the market, drawing in still more investors. By 2011 gold had topped $1,800 – a gain of 315% from when the first gold ETF launched.
This kind of potential has made the SEC’s blanket refusal of a spot Bitcoin ETF all the more frustrating.
And while the SEC does have a clear responsibility to protect retail investors, its hardline stance has begun to feel more like a vendetta.
In a scathing editorial, The Wall Street Journal recently accused SEC Chairman Gary Gensler of “taking investors hostage” with his refusal to allow a spot Bitcoin ETF. The editorial also notes that more than 70 exchange-traded products are thriving on European markets without incident.
There’s even dissent within the SEC itself. Commissioner Hester Peirce, also known as “Crypto Mom,” has spoken out repeatedly in favor of approving a spot Bitcoin ETF.
“Watching the SEC refuse over the past four years to engage productively with crypto users and developers has prompted feelings of disbelief at the SEC’s puzzling, out-of-character approach to regulation,” Peirce said in a recent speech in which she also called the SEC’s reasoning “confusing, unhelpful, and inconsistent.”
Indeed, the SEC surprised everyone when it approved several Bitcoin ETFs based on derivatives, starting with the ProShares Bitcoin Strategy ETF (BITO) last October.
Yet a spot Bitcoin ETF remains verboten.
That said, I think the SEC will approve a spot Bitcoin ETF at some point. And depending on what unfolds over the next year or so, it could happen as soon as the end of next year.
How We Could Get a Spot Bitcoin ETF in 2023
The SEC has been pretty clear about why it keeps rejecting a spot Bitcoin ETF – concerns about a lack of safeguards against market manipulation – so to get a different result something needs to change.
Here are the possibilities:
- New SEC commissioners: The SEC consists of five members – four commissioners and a chair. We know that Commissioner Peirce favors a spot Bitcoin ETF and that Chairman Gensler doesn’t. It’s unclear who among the remaining three commissioners might support approval, if anyone.
But SEC terms only last five years, and are staggered. In fact, the Senate just confirmed two new commissioners, Jaime Lizárraga and Mark Uyeda, June 14. That change could have improved the odds of approval. But if not, more changes are due. Uyeda was appointed to serve out a term of a commissioner who left early; that term expires next year. Commissioner Caroline Crenshaw’s term expires in 2024.
This is a wild card to be sure, but new faces create the chance the balance of votes could tip in favor of approval.
- The Grayscale lawsuit: Unlike other entities trying to get a spot Bitcoin ETF approved, Grayscale has an existing product it would like to convert to an ETF, the Grayscale Bitcoin Trust (GBTC). The SEC has rejected this application like the others. But last month Greyscale filed a lawsuit against the SEC, claiming the rejection showed the agency was acting “arbitrarily and capriciously” by “failing to apply consistent treatment to similar investment vehicles.”
Bloomberg ETF expert Eric Balchunas tweeted that the “odds aren’t great” that Grayscale will win – but if it somehow does the SEC will have to approve the conversion of GBTC to a spot Bitcoin ETF. And that would open the floodgates. In any event, we won’t have to wait terribly long. The case should be decided within 12 to 18 months.
- The crypto bill becomes law: The primary reason the SEC gives when it disapproves spot Bitcoin ETF applications is always the same: The Bitcoin market lacks surveillance-sharing agreements among the major exchanges where it’s traded. The SEC views these agreements as vital to the detection of fraud and market manipulation.
However, the Lummis-Gillibrand crypto bill addresses this directly. It grants the Commodities Futures Trading Commission (CFTC) jurisdiction over crypto spot markets. The bill proposes that crypto exchanges will need to register with the CFTC and, most critically, “establishes core principles, rulemaking, custody, customer protection, prevention of market manipulation, information-sharing and preemption standards.”
That laundry list should satisfy the SEC’s concerns. The sticking point is that the bill could go through significant changes before it becomes law – if it even gets that far. But as a bipartisan effort with broad support I think the bill stands a very good chance of getting passed next year.
It’s far from a sure thing, but Lummis-Gillibrand creates the best chance for approval of a spot Bitcoin ETF in 2023. To improve those odds, contact your lawmakers in Washington – you can easily find your Representative’s contact details here, and your Senator’s details are available right here.
And keep your fingers crossed.
Follow me on Twitter @DavidGZeiler.