The U.S. Securities and Exchange Commission (SEC), the authoritative financial regulatory body responsible for determining the viability of a point-to-point cryptocurrency exchange-traded fund (ETF), appears to be moving toward potential approval of this investment vehicle after a significant period in which numerous applications have been filed.
In June, BlackRock, the world’s largest asset management company, submitted its application to the collection of Bitcoin (BTC) ETF applications currently under review by the SEC. This development sparked renewed investor interest both within and outside the cryptocurrency sphere. The company subsequently entered into a “joint surveillance agreement” with cryptocurrency exchange Coinbase in response to indications that the SEC may be more receptive to reviewing an ETF application under such circumstances.
It’s Not Just Blackrock That Has Applied
Cryptocurrency exchange-traded fund (ETF) applications filed with the SEC by several financial institutions, including BlackRock, are currently under review by the SEC. In May 2023, ARK Invest, led by CEO Kathy Wood, filed with the SEC to list the ARK 21Shares spot Bitcoin ETF. The U.S. Securities and Exchange Commission (SEC) decided to start the process of gathering public opinion on the plan on August 11, after which it extended the deadline for another 21 days.
Under rules set by the SEC, the federal regulator has the discretion to extend the public comment period for exchange-traded fund (ETF) applications by a maximum period of 240 days. Such an extension may be accomplished in various ways, such as through public solicitation or alternative methods, after the initial filing in the Federal Register. However, it should be noted that the SEC still needs to authorize the creation of a spot bitcoin exchange-traded fund (ETF) by any entity in the United States. It is important to note that the SEC has only begun accepting investment instruments related to Bitcoin futures as of October 2021.
One of the significant hurdles in obtaining SEC approval for a cryptocurrency exchange-traded fund (ETF) may be the inherent characteristics of the investment instrument. Exchange-traded funds (ETFs) tied to bitcoin futures offer individuals and companies the opportunity to invest in this cryptocurrency asset without resorting to traditional exchanges. Conversely, a spot bitcoin ETF involves the inclusion of bitcoins in the fund, which provides a more direct way to invest.
Gemini’s Application Was Rejected by the SEC
The initial application to list the Bitcoin Trust cryptocurrency exchange-traded product was filed by Gemini’s esteemed co-founders Cameron and Tyler Winklevoss in July 2013. Numerous regulatory agencies may have yet to understand digital currencies during this period. Therefore, the U.S. Securities and Exchange Commission (SEC) eventually rejected the application.
Stuart Barton, co-founder, and chief investment officer of Volatility Shares, which introduced a leveraged bitcoin futures exchange-traded fund (ETF) in June, told Cointelegraph that a series of iterative discussions accompanied the company’s application to the SEC. The regulator has proposed amendments to disclosure documents, generally showing a willingness to cooperate. Small companies may have a comparative advantage when engaging with the SEC in the context of a prospective cryptocurrency exchange-traded fund (ETF) proposal.
According to Barton, the prevailing tendency among large corporations is to maintain established practices over time. Indeed, new applications and documents have recently emerged. However, it is worth noting that these changes have yet to improve the issue at hand significantly.
Several prominent asset management firms have filed applications with the SEC to create dot-com bitcoin ETFs. The SEC has granted a maximum extension period of 240 days to ARK’s bitcoin exchange-traded fund (ETF) application. Thus, the final deadline for approval or disapproval of ARK’s ETF is January 2024. Similarly, other companies’ ETF offerings could receive an SEC decision as early as March 2024.
For Applications to Be Approved, More Transparency and Strong Oversight Are Needed
The SEC’s hesitancy to approve a point cryptocurrency exchange-traded fund (ETF) may be due to the peculiarities of the U.S. cryptocurrency market. Although this market is regulated, many lawmakers and industry representatives favor increased transparency and oversight. Currently, the U.S. Securities and Exchange Commission (SEC) is pursuing legal cases against well-known representatives of the cryptocurrency industry, such as Coinbase, Binance, and Ripple. In addition, the SEC has already imposed monetary sanctions on companies such as Bittrex. Barton made an addition:
Both parties involved are expected to show some flexibility. It is envisioned that the U.S. Securities and Exchange Commission (SEC) may benefit by taking a more receptive stance […]. Flexibility and adaptability are expected to increase significantly in the cryptocurrency industry.
U.S. lawmakers are currently discussing the possibility of legislative action to provide greater clarity on the respective jurisdictions of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) concerning the oversight of digital assets. In addition, both regulators and industry stakeholders should consider recent court decisions before adopting comprehensive regulations. Specifically, the judge hearing the SEC’s case against Ripple ruled that XRP could not be considered a security, resulting in significant implications for all organizations involved in cryptocurrency transactions within the United States.
According to Barton, the ETF filing process gives the SEC significant power. Gensler has considerable influence in this matter, as the political makeup of the commission undoubtedly plays a role in determining the outcome.
According to analysts, as of August, the prevailing view is that there is about a 65% chance of a bitcoin exchange-traded fund (ETF) being approved in the United States. A statement made by BlackRock partly influences that estimate. Katie Wood and Grayscale, an asset manager currently in litigation with the SEC over its ETF application, pointed to the possibility that the regulator could decide to approve multiple applications simultaneously, negating the potential competitive advantage of one company over another.