SEC Advances Discussions on Bitcoin ETFs, Raising Hopes for Approval

Advocates argue that a regulated ETF linked to the cryptocurrency's spot price would offer investors a secure way to invest in Bitcoin.

Discussions between the U.S. Securities and Exchange Commission (SEC) and asset management firms seeking to launch Bitcoin exchange-traded funds (ETFs) have progressed to critical technical details, indicating the potential approval of these products, according to industry insiders.

Thirteen companies, including Grayscale Investments, BlackRock, Invesco, and ARK Investments, have submitted applications to the SEC for ETFs that would track Bitcoin’s price.

Advocates argue that a regulated ETF linked to the cryptocurrency’s spot price would offer investors a secure way to invest in Bitcoin.

Historically, the SEC has rejected such products, citing concerns about investor protection.

However, following a court ruling in August that found the SEC had wrongly rejected Grayscale’s ETF conversion application, the SEC has engaged with ETF issuers on substantive matters.

These discussions have delved into custody arrangements, creation and redemption mechanisms, and investor risk disclosures – topics typically addressed towards the end of the ETF application process.

A spot Bitcoin ETF would mark a significant development, allowing cautious investors access to the world’s largest cryptocurrency through the tightly regulated stock market.

The anticipated demand for such ETFs is estimated to be as high as $3 billion in the initial days of trading.

The SEC has until January 10 to make a final decision on ARK’s application, which is the first in line. The advanced nature of the discussions suggests that the SEC may approve ARK’s application and potentially some of the other 12 pending applications in the coming year.

This development has contributed to a recent surge in Bitcoin prices, reaching a 20-month high.

While the SEC has expressed concerns about Bitcoin’s susceptibility to manipulation in the past, recent discussions have shifted towards substantive matters.

Publicly available SEC memos indicate meetings between executives from BlackRock, Grayscale, Invesco, and 21 Shares, along with representatives from the exchanges where they intend to list the ETFs, have taken place since September.

Other asset managers have also reportedly met with SEC staff during this period.

As discussions have progressed, issuers have updated their filings to reflect new details. For instance, BlackRock recently amended its filing to provide more insight into the measures it plans to implement to protect investors.

Despite these advancements, the SEC has not made any public statements regarding the approval of Bitcoin ETFs, and certain issues, such as the settlement mechanism (cash or “in-kind”), remain unresolved.

SEC Chair Gary Gensler’s office has also been involved in some recent discussions, indicating increased attention to this matter within the regulatory body.

The SEC’s engagement with ETF issuers intensified following a federal appeals court ruling that found the SEC had failed to adequately justify its rejection of Grayscale’s ETF application.

Some believe this ruling limits the grounds on which the SEC could reject future applications.

Furthermore, many issuers argue they have addressed the SEC’s market manipulation concerns through surveillance arrangements with listing exchanges and Coinbase, the largest U.S. cryptocurrency exchange.

If the SEC seeks additional time, it could ask ARK to withdraw its application and resubmit it.

However, this approach could carry legal risks given the precedent set by the Grayscale decision.

Despite uncertainties, market observers anticipate progress in the approval of Bitcoin ETFs, marking a significant milestone for the cryptocurrency industry.