Approval of a spot Bitcoin ETF now seems inevitable, according to broker TD Cowen. The real question is going to be when. The prospect of such a fund is helping to lift the Bitcoin price and is seen by many crypto investors as being an important, even necessary landmark on the journey to wider adoption of digital assets.
“We believe we are in the endgame for the SEC to approve a Spot Bitcoin ETF,” TD Cowen said in a note to fund managers this week. “It would surprise us if it was in weeks, but it is also unlikely to be in a year or more.”
SEC chair Gary Gensler has frequently and consistently argued that the SEC will not approve a spot Bitcoin ETF, largely due to concerns around custody and because the Bitcoin market is considered to still be too vulnerable to manipulation.
“Cryptocurrencies face numerous obstacles to achieve mainstream acceptance, as they are still in the early stages,” explains Nicklas Nilsson, a consultant with GlobalData. “For instance, the world’s richest person, Bernard Arnault, could acquire most of the circulating Bitcoins, and the total cryptocurrency value is still lower than Amazon’s market cap.”
There are several fund managers with ETF applications in the pipeline. Some have been amending their applications to the SEC because of exposure to Coinbase, which was being listed as the custodian on many of the current wave of ETF applications.
“We also believe the market manipulation argument will be difficult to sustain as there have not been issues with a futures Bitcoin ETF,” TD Cowen said. “In addition, the value of Bitcoin may rise and fall, but there has been orderly trading through the FTX collapse.”
So why should the SEC approve a spot Bitcoin ETF?
Some of this may boil down to the battle for authority within the US financial services sector. The SEC wants to make sure it retains regulatory authority over crypto assets. The last thing it wants is for Congress to create a new agency for this or, worse still, hand it to the CFTC, which regulates the futures trading sector. The SEC is already engaged in suits against both Coinbase and Ripple, and wants to portray itself as the sheriff in this particular part of town.
The SEC is also facing increasing pressure from fund managers who handle institutional assets to give them a break and approve a spot Bitcoin ETF. Republicans in Congress have been critical of Gensler, saying he is too hawkish on cryptocurrency. Trading platforms that could be used to support a spot Bitcoin ETF have said they are confused about what the SEC wants them to do to comply.
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The SEC will also be aware of regulatory developments around crypto in other parts of the world, especially within the European Union where the EU’s Markets in Crypto-Assets bill could pave the way for robust regulatory framework that could underpin a European spot Bitcoin ETF. These regulations could be before national authorities in Europe for approval by 2025. Singapore, Japan and the UK are also pushing ahead with their own regulations.
Leading the charge for a spot ETF is fund management giant BlackRock, whose CEO Larry Fink recently defined Bitcoin as ‘digital gold’. A final deadline for the SEC to approve or reject BlackRock’s application has been set as February 2024. The clock is ticking.
