Dreamstime
Bitcoin
and other cryptocurrencies surged Monday on the rising possibility that the Securities and Exchange Commission soon will approve the first spot Bitcoin exchange-traded fund. But investors hoping for an immediate nod should be wary—there will be more speed bumps along the road.
The price of Bitcoin spiked to more than $30,000 on Monday, before fading to about $28,100. That was still about 3.5% above its level 24 hours ago. The jump in price came after a crypto trade publication tweeted that the SEC had approved an application by BlackRock (ticker: BLK) to launch a spot Bitcoin ETF. A BlackRock spokeswoman in a statement to Barron’s said its application is still under review, and the publication deleted its tweet and apologized.
The inaccurate tweet is a good marker of the false starts that Bitcoin investors are likely to see over the coming weeks as the SEC considers applications to allow the first spot Bitcoin ETFs to come to market.
While ETFs that hold Bitcoin futures have existed for years, no spot Bitcoin ETF, which holds Bitcoin itself as opposed to derivatives, yet trades in the U.S. A spot Bitcoin ETF would be expected to usher in a fresh wave of investor interest in digital assets and pave the way for greater institutional interest in the asset.
The most recent bullish news came on Friday, when the SEC declined to file a challenge to a recent court defeat.
In August, a panel of judges for the U.S. Court of Appeals for the D.C. Circuit ruled that the agency erred in rejecting an application by Grayscale Investments to convert the
Grayscale Bitcoin Trust
(GBTC) into an ETF. The judges said the agency’s decision was “arbitrary and capricious” in light of the SEC’s approval of such products that hold Bitcoin futures and track the same asset.
The SEC’s decision not to appeal all but paves the way for the Grayscale Bitcoin Trust to convert into an ETF, but there are still ways that Grayscale’s application and others like it, could be delayed.
For one, if it chooses, the SEC still has the option to challenge Bitcoin ETFs through other means. The agency could reject the ETFs for reasons not addressed by the court. In an extreme scenario, the agency could even seek to delist the Bitcoin futures products that were the basis for the court’s determination that potential spot Bitcoin ETFs were treated unfairly.
Even if the agency does relent on the issue addressed by the court, there are still other approvals the fund firms must garner before an ETF could come to market.
That’s because ETF providers including Grayscale, BlackRock,
Invesco
(IVZ),
WisdomTree
(WT) and others have technically been seeking a rule change that would allow their products to be listed on an exchange. In addition to that change, the firms must get the SEC’s nod for prospectuses and other documentation that accompany the approval of any ETF, a process that goes through a different SEC department than the one approving the rule change.
That process should be less fraught than the one that went to court, but it still can result in delays as the providers and agency go back and forth on what should be disclosed in the prospectuses. In recent days, Ark Investment Management, which has its own spot Bitcoin ETF application, has updated its prospectus to include new disclosures, which some analysts have said potentially indicates Ark is already engaging with the SEC on that issue. Ark declined to comment.
A key sign that traders have turned particularly bullish on the Grayscale conversion Monday was a shift in the Grayscale discount.
Grayscale’s Bitcoin fund trades like a closed-end fund, with a price that can deviate from the value of the Bitcoin it holds. For almost two years, it’s traded at a discount, but the discount has narrowed amid bets that the SEC will wave through the fund’s conversion. On Monday, the Grayscale discount moved to its narrowest since December 2021 on Monday at below 16%, having closed from a discount of near 19% at the beginning of October.
A Grayscale spokeswoman has said that the firm is operationally ready to convert GBTC into an ETF as soon as it gets the necessary approvals.
Beyond Bitcoin,
Ether
—the second-largest crypto—advanced 2% to $1,580. Smaller tokens or altcoins were also buoyant, with
Cardano
climbing 2.5%, and
Polygon
popping 2.2%. Memecoins also advanced, with
Dogecoin
and
Shiba Inu
rising 2% each.
Write to Joe Light at [email protected] and Jack Denton at [email protected]
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