In May and June 2023, eight investment firms applied to the Securities and Exchange Commission (SEC) for approval to list and trade Bitcoin Exchange Traded Funds(ETFs). The list includes:
- ARK 21Shares
- Galaxy Digital
There were high expectations that the regulator would issue its decisions regarding the applications within August. However, on August 11, 2023, the SEC issued a statement announcing a requirement for more public input on the ARK 21Shares application, a process that might take up to a month.
The market has largely interpreted this as indicating that all the other applications could face the same fate.
The first Bitcoin ETF application, the Winklevoss Bitcoin Trust, was made in July 2013 by twin brothers Cameron and Tyler Winklevoss. The SEC rejected it, and over a dozen others made it in the intervening years.
Most things have stayed the same regarding the nature of Bitcoin. What has mostly changed is the caliber of applicants — Mostly mainstream — and the sentiments of major players in the mainstream financial markets.
For example, BlackRock is the world’s largest asset manager, with over $9.5 trillion in assets. WisdomTree, Fidelity, and Invesco are also major multinational investment firms.
The change of opinion about Bitcoin by BlackRock’s CEO Larry Fink is the most apt illustration of how the sentiments in the mainstream financial markets are changing. In October 2017, he described Bitcoin as an ‘index of money laundering.’
“Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is,” he is quoted to have stated at an Institute of International Finance meeting.
In April 2021, in an interview with CNBC, Larry Fink made a 180-degree turn and declared that he was fascinated by Bitcoin and encouraged by how many people are focusing on it. “I’m encouraged about the narrative, it may become a great asset class, and I do believe this could become a great asset class,” he said.
Given the new circumstances, especially the seeming embrace by major players in the mainstream financial market, many within the crypto space believe the SEC will likely approve at least one of the eight applications this time.
However, there are still major obstacles the applicants must overcome. The one that stands out the most is the choice of a surveillance-sharing partner, a critical component in an ETF application.
All of the applicants have picked Coinbase as their surveillance-sharing partner. However, the exchange is in court fighting charges by the SEC that it illegally listed digital assets the regulator considers securities.
There are those of the opinion that a surveillance-sharing partner is not a critical requirement. Scott Johnsson, a finance lawyer who has worked for major investment firms and banks, including Barclays Bank, is in this school of thought.
“Reminder that the first commodity ETF — SPDR Gold Trust — was approved by the SEC WITHOUT a surveillance sharing agreement with the underlying spot market, instead relying on SSA with futures. Exactly what GBTC has been attempting for years,” he has explained in a tweet.
The approval of a Bitcoin ETF will impact both the crypto and mainstream financial markets.
For starters, the approval will give Bitcoin the credibility it needs from the mainstream financial market. On the other hand, it provides a path to mainstream investors who have always wanted to profit from the expanding crypto market but have struggled with technical and legal obstacles.