The US Securities and Exchange Commission (SEC ) has delayed decisions on physical (spot) Bitcoin Exchange-Traded Fund (ETF) proposals from Grayscale Investments LLC and Bitwise asset management Group. In a notice dated Wednesday, December 15, the market regulator announced that it has another 45 days to review the Bitwise Bitcoin ETP Trust and Grayscale Bitcoin Trust proposals. Now, the agency is expected to determine whether to approve or disapprove Bitwise and Grayscale applications on February 1 and February 6, respectively.
The SEC wrote in both notices: “The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and any comments received.”
On October 14, Bitwise filed for a spot Bitcoin ETF to enable it to provide exposure to actual Bitcoin as opposed to derivatives like Bitcoin futures or other indirect exposure. In November, the company went ahead and dropped its own Bitcoin futures ETF proposal, despite several such products being launched in the United States.
Meanwhile, on October 19, Grayscale, the world's largest digital currency asset management firm with $45.6 billion in assets under management, applied to convert its popular Bitcoin Trust to an ETF.
Why the SEC Favours Bitcoin Futures ETFs
The latest development by the SEC comes at a time when the regulator is continuing to maintain a hard stance on physical crypto ETFs while approving industry ETFs with indirect exposure to cryptocurrency including Bitcoin futures ETFs. In October, the regulator approved two Bitcoin futures ETFs, which marked a significant milestone for the industry. The ProShares Bitcoin Strategy ETF started trading on the NYSE Arca exchange on October 19 and accumulated over $1 billion in assets in just a matter of days. A few days later, the second Bitcoin futures ETF (the Valkyrie’s Bitcoin Strategy ETF) began trading on the Nasdaq exchange and also received a vigorous reception. As a result, their premier trading activities created lots of excitement in regards to Wall Street's acceptance of cryptocurrency and raised hopes that the SEC might consider approving a spot Bitcoin ETF this time around.
However, on November 12, the SEC denied the approval of VanEck's physical Bitcoin ETF to trade on Cboe Global Markets Inc, making its first ruling on the subject. In early December, the regulator rejected a spot bitcoin ETF by the asset management firm, WisdomTree after it had already delayed the decision since the previous June. Last month, the SEC reiterated its long-stated concern that spot Bitcoin ETFs violate securities rules because the market is prone to fraud, manipulation and abuse. The SEC Chairman, Gary Gensler has stated that he is comfortable with futures-based ETFs because Bitcoin futures trade on highly regulated exchanges. However, that is not the case with physical Bitcoin ETFs.
The two products are different. A physical Bitcoin ETF would be tied directly to the price of Bitcoin on spot exchanges like Coinbase where investors trade the cryptocurrency for whatever the price is currently. However, futures-based Bitcoin ETFs are tied to derivatives markets where investors use it to hedge risk and/or predict the direction of the price.
