According to Reuters, the US Securities and Exchange Commission (SEC) has come to key technical details in discussions with issuers hoping to submit a Bitcoin exchange-traded fund (ETF) for approval by the SEC. This is a significant sign that the SEC is likely to approve ETF applications soon.
Major Progress Made in Discussions Between SEC and Issuers
So far, 13 issuers, including Grayscale Investments, BlackRock, Invesco, and ARK Investments, have applied directly to the SEC for ETFs that hold BTC and track Bitcoin’s price. Market observers argue that a regulated investment product like an ETF provides the best way to invest in the spot price of the largest cryptocurrency.
SEC has been avoiding giving the green light to such investment products, claiming that they do not meet the standards for protecting investors. However, the tide turned in August of this year when a US court ruled that the SEC’s rejection of Grayscale Investments’ application to convert its Bitcoin investment fund into a spot ETF was wrong. According to Reuters sources, the SEC is currently in discussions with issuers to discuss some technical details usually addressed towards the end of the ETF application process. These technical details include custody, creation and redemption mechanisms, and investor risk disclosures.
Market observers point out that SEC’s approval of a spot Bitcoin ETF will open the way for cautious investors to access BTC through tightly regulated exchanges and see it as a significant milestone for the cryptocurrency market. The approval of a spot Bitcoin ETF by the SEC is expected to generate demand of up to $3 billion in the first few days.
However, SEC continues to be concerned that the price of Bitcoin is susceptible to manipulation. Sources report that this issue has often been the focus of previous discussions with ETF applicants. SEC has until January 10 to make a definitive decision on ARK Investments’ application. The progress of the discussions indicates that SEC may approve ARK Investments’ application, and possibly the other 12 applications, in the new year.
As discussions progress, issuers have had to update their applications to reflect new details. For example, this week BlackRock updated its application to provide more details on the measures it plans to take to protect investors.
Grayscale Investments Ruling Ties SEC’s Hands
SEC has not yet made a final decision on any spot Bitcoin ETF and is avoiding making any statements on the matter. SEC Chairman Gary Gensler, in October, targeted the cryptocurrency industry as a violator of the rules of the US securities regulator and criticized the industry in front of US lawmakers in the Senate.
Market observers believe that despite Gensler’s emphasis on rule violations, the SEC cannot reject ETF applications due to the Grayscale Investments ruling. Indeed, many issuers are considering addressing market manipulation concerns by considering a surveillance arrangement with the US-based major cryptocurrency exchange Coinbase.
Nevertheless, if the SEC wants to buy more time regarding the pending ETF applications, it has the right to request ARK Investments to withdraw its application and reapply. However, market observers do not consider this possibility likely due to the legal risks posed by the Grayscale Investments ruling.