Soon, the US Securities and Exchange Commission will likely approve the first ETFs to hold bitcoin directly.
The potential approval of the asset class blockchain would be an important step in legitimizing it, after a decade long effort on behalf of fund issuers.
In recent months there has been a growing optimism about such a possible. Let’s look back at the journey we took to get here.
Assaults begin
Cameron Winklevoss and Tyler Winklevoss registered the Winklevoss Bitcoin Trust on July 1, 2013. Bitcoin was worth about $100 in July 2013.
The fund, which was offered by Math-Based Asset Services (the company of the brothers), would hold BTCs and store them through an unnamed custodian.
“The sponsor believes the trust to be the first exchange-traded product that seeks to track the price of a digital math-based asset such as bitcoins,” The 2013 filing was stated.
In 2017, the SEC rejected the Winklevosss’s attempts, noting the lack of regulations in the Bitcoin market. “concerns about the potential for fraudulent or manipulative acts and practices.”
Filings other than those required by law, and denials
Others tried similar things to Winklevoss and not everyone made it through to rejection.
Grayscale Investments — known for its Bitcoin Trust (GBTC) — first submitted a bitcoin ETF application in 2016 and “spent the better part of 2017 in conversations with the SEC,” The company stated in an SEC filing.
“Ultimately, we withdrew our application because we believed the regulatory environment for digital assets had not advanced to the point where such a product could successfully be brought to market,” The firm makes a note in the file.
Bitwise is a cryptocurrency-focused asset manager that filed in 2019 for an ETF with physical backing, but subsequently withdrawn its application in January of 2020 because the SEC was concerned. The company would try again in October 2021.
In fact, it would deny applications for spot Bitcoin ETFs based on similar reasons to the Winklevoss Bitcoin Trust ruling.
The SEC stated that the Cboe BZX Exchange was the Cboe BZX Exchange in a decision made on November 20, 2021 regarding a proposed fund by VanEck. “has not established that other means to prevent fraudulent and manipulative acts and practices are sufficient.” The regulator said that the exchange, on which an ETF proposed would be traded, did not possess a surveillance agreement. “with a regulated market of significant size related to bitcoin.”
This ruling was made a month before the SEC approved ETFs which invest in Bitcoin futures contracts, to begin trading as early as October 2021.
Grayscale VanEck Bitwise and more than 12 other issuers have submitted bitcoin ETF applications to the SEC. Over the past few years, this firm has published research on rebuttals against various bitcoin ETF submissions.
BlackRock is the latest to join in on this race
Some fund issuers were not deterred. Even one asset management company decided to go ahead with a bitcoin spot ETF in spite of the rejections.
Ark Invest & 21Shares started the latest round of Bitcoin ETFs approvals in April, 2023. The two companies had first partnered up in order to launch a bitcoin ETF in 2021.
While the SEC denied and denied, we continued to file, filing, filing.” Ark Invest CEO Cathie Wood said during a webinar last month. “It’s 21Shares who deserves a great deal of credit for pushing me in this direction.”
BlackRock then turned heads last June when it revealed its intention to launch a bitcoin ETF. The fund titan manages more than $9 trillion in assets and has only ever had one proposed ETF rejected by the SEC.
Townsend Lansing, head of product at CoinShares, wrote in an August blog post that there will likely be additional “Politics as a catalyst” on the SEC to approve spot bitcoin ETFs, considering traditional finance giants like BlackRock are involved.
Like BlackRock, fellow financial services goliath Fidelity has a live spot bitcoin ETF application before the US securities regulator.
Grayscale sues SEC, then wins
Another milestone some industry watchers believe has made US spot bitcoin ETF approval more likely is Grayscale’s court victory against the SEC in August. The SEC opted not to appeal the decision.
The regulator had denied the firm’s proposed conversion of GBTC to an ETF in 2022. Grayscale sued the SEC in response.
Judges in the case ruled that the SEC’s decision to block this conversion, but approve bitcoin futures ETFs, was “Especially if it is arbitrary or capricious.”
While the ruling does not force the SEC to approve GBTC’s change to an ETF, the regulator must deny such an action on different grounds. Grayscale continues to amend its application as it prepares for a potential conversion.
‘Pattern break’ evident
21Shares President Ophelia Snyder said in November there has been a “Pattern Break” amid this latest wave of bitcoin ETF filings — adding issuers are offering more details about how the funds would operate.
“She said, “That’s really good, because very honestly, changing your behavior could result in an actual change in the outcome. And that’s exciting.”
Various fund groups announced last week that Jane Street Securities, JPMorgan Securities, and other companies were authorized participants in their bitcoin fund.
These entities will be called upon to redeem and create fund shares, if these ETFs get approved.
Apart from the constant flow of amendments to applications, ads focusing on bitcoins are beginning to spread.
Last month, Bitwise released several ads featuring Jonathan Goldsmith. Hashdex and VanEck followed with its own efforts — marking the initial stages of an expected marketing war if and when spot bitcoin ETFs are approved.
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