The crypto community is brimming with anticipation as they await the long-awaited ruling from the U.S. Securities and Exchange Commission (SEC) regarding the approval of a spot bitcoin exchange-traded fund (ETF). This development comes after more than a decade of unsuccessful attempts to obtain approval. Thirteen companies have filed applications for a spot bitcoin ETF, each bringing its unique perspectives and proposals to the table.
The Components of the Applications
The applications for a spot bitcoin ETF consist of two key components. Firstly, there’s the 19b-4 filing, wherein exchanges inform the SEC about a proposed rule change. In this case, a rule change is necessary because a spot bitcoin ETF is considered a new product. Exchanges such as NYSE, Nasdaq, and Cboe must outline the rules governing the trading of this product. The SEC’s approval of these rule changes is a prerequisite for the ETF’s trading commencement. One notable deadline is that of the Ark/21Shares Bitcoin Trust, set for January 10.
The second component is the approval of the S-1 filing, which involves registering a new security with the SEC. Each company filing for a spot bitcoin ETF has its own unique way of structuring the product. For instance, the Grayscale Bitcoin Trust requires approval of an S-3 filing, which is a simplified security registration form for businesses that have fulfilled other reporting requirements. It is widely expected that once the 19b-4 filings are approved, the SEC will subsequently grant approval for all the S-1 applications. However, the distinct nature of the applications means that the SEC may choose to approve some while rejecting others.
With 13 companies vying for a bitcoin ETF, all offering similar products, there is considerable interest in the fee structure of these ETFs. Fidelity’s Wise Origin Bitcoin Fund has already announced its fee of 39 basis points (0.39%). Invesco’s Galaxy Bitcoin ETF, on the other hand, has set its expense ratio at 59 basis points, which will be waived for the first six months and the initial $5 billion in assets. Ark/21Shares and Valkyrie plan to charge 80 basis points. Grayscale Bitcoin Trust, which currently charges 2%, has expressed its commitment to reducing the fee once its application to convert to a bitcoin ETF receives approval. The fee structures of other applicants are yet to be disclosed.
SEC Chair Gary Gensler’s Stance on Cryptocurrencies
The developments surrounding the approval of a spot bitcoin ETF occur amid SEC Chair Gary Gensler’s ongoing battles with the crypto industry. Gensler has been engaged in several court disputes with major crypto players, including a high-profile case against Grayscale Bitcoin Trust, which the SEC lost last summer. The U.S. Court of Appeals for the D.C. Circuit ruled that the SEC’s approval of a futures-based bitcoin product logically necessitated the approval of a spot bitcoin product. While bitcoin has been recognized as a commodity, the lack of clear federal rulings on other cryptocurrencies has resulted in the SEC resorting to regulatory enforcement to establish its authority over much of the crypto industry.
The SEC’s case against Coinbase, the largest U.S. crypto exchange, alleges that the company violated regulations by failing to register as an exchange. According to the SEC, some of the crypto assets traded on Coinbase are securities falling under their purview. Additionally, the SEC sued Binance and its founder Changpeng Zhao in June, accusing them of engaging in deceptive practices and evasion of the law. The case against Binance is ongoing, although Zhao settled separate charges with the U.S. Department of Justice, agreeing to pay a $50 million fine and step down as the company’s chief executive. As part of the settlement, Binance accepted the appointment of a government monitor to oversee its operations.
The impending approval of a spot bitcoin ETF represents a significant milestone for crypto investors. If granted, it will provide them with an accessible and regulated avenue to invest in bitcoin, potentially opening doors for more widespread adoption. As investors eagerly await the SEC’s ruling, the crypto industry braces itself for potential regulatory changes and market shifts that will inevitably follow.
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