Crypto Quill

The US Securities and Exchange Commission (SEC) is reportedly close to approving the first spot bitcoin exchange-traded funds (ETFs) by January 10, 2024, according to industry sources and public memos. This would mark a major milestone for the cryptocurrency industry, as it would allow investors to access the world’s largest digital asset via the regulated stock market.

SEC engages with ETF applicants on technical details

The SEC has been in discussions with several ETF applicants, including Grayscale Investments, BlackRock, Invesco, and ARK Investments, on key technical details, such as custody arrangements, creation and redemption mechanisms, and investor risk disclosures. These are some of the issues that usually come up near the end of an ETF application process, indicating that the SEC is ready to make a final decision soon.

The SEC has until January 10, 2024, to approve or reject the joint proposal from ARK and 21 Shares, which is the first in line. Most issuers expect that the SEC will likely give the green light to several applications at the same time in the days leading up to that deadline.

The SEC has previously rejected several spot bitcoin ETF proposals, citing concerns about market manipulation and investor protection. However, after a court ruled in August that the SEC was wrong to deny Grayscale’s application to convert its bitcoin trust into an ETF, the regulator has been more open to considering the products.

Spot bitcoin ETFs could boost demand and price of bitcoin

Proponents of spot bitcoin ETFs argue that they offer investors the best way to invest in bitcoin, as they track the actual price of the cryptocurrency, rather than futures contracts or other derivatives. They also claim that spot bitcoin ETFs would increase the liquidity and transparency of the bitcoin market, and reduce the costs and risks associated with holding the asset directly.

The anticipation of spot bitcoin ETFs has already boosted the demand and price of bitcoin, which reached a 20-month high of over $51,000 this month. Analysts estimate that the initial inflows into the ETFs could be as much as $3 billion in the first few days.

Spot bitcoin ETFs would also provide an alternative to existing products, such as the Grayscale Bitcoin Trust (GBTC), which trades at a discount to its net asset value, and the bitcoin futures ETFs, which have higher fees and tracking errors. Spot bitcoin ETFs would also compete with other platforms that offer exposure to bitcoin, such as PayPal, Square, and Robinhood.

Bitcoin ETFs face regulatory and market challenges

Despite the optimism surrounding spot bitcoin ETFs, they still face some regulatory and market challenges. For instance, the SEC may impose strict conditions on the ETFs, such as requiring them to use cash redemptions instead of in-kind redemptions, which could affect their efficiency and performance.

Moreover, the SEC may not approve all the applications, but only select a few that meet its standards. The SEC may also favor some types of ETFs over others, such as those that use multiple custodians, or those that have lower fees and wider distribution.

Additionally, the spot bitcoin ETFs may not be able to capture the full potential of the bitcoin market, as they would only reflect the price of bitcoin on regulated exchanges, which may not reflect the true supply and demand of the asset. Furthermore, the spot bitcoin ETFs may face competition from other innovative products, such as decentralized finance (DeFi) protocols, that offer more functionality and flexibility to investors.