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Bitcoin, the world’s most popular and valuable cryptocurrency, has been on a roller coaster ride in the past year. It reached an all-time high of over $64,000 in April 2021, then plunged to below $30,000 in June 2021, before rebounding to above $50,000 in July 2023. Despite the volatility, Bitcoin has attracted millions of investors, traders, and enthusiasts who believe in its potential as a digital store of value, a medium of exchange, and a hedge against inflation.

However, investing in Bitcoin is not as easy or convenient as investing in other assets like stocks or bonds. One has to deal with complex issues such as setting up a digital wallet, choosing an exchange or platform, securing private keys, paying fees and taxes, and complying with regulations. Moreover, one has to face the risks of hacking, theft, fraud, and market manipulation that plague the crypto space.

This is where a Bitcoin exchange-traded fund (ETF) comes in. A Bitcoin ETF is a type of fund that tracks the price of Bitcoin and can be bought and sold on a regular stock exchange. A Bitcoin ETF would offer investors a simple and safe way to gain exposure to Bitcoin without owning or storing it directly. A Bitcoin ETF would also open the door for more institutional and retail investors to enter the crypto market, boosting its liquidity and adoption.

What is a Spot Bitcoin ETF and How Does It Differ from a Bitcoin Futures ETF?

There are two main types of Bitcoin ETFs: spot and futures. A spot Bitcoin ETF is a fund that holds actual Bitcoins in custody and tracks their market price. A spot Bitcoin ETF would reflect the true value of Bitcoin and its supply and demand dynamics. A spot Bitcoin ETF would also avoid the complexities and costs of dealing with futures contracts, such as rollover, contango, backwardation, and margin requirements.

A futures Bitcoin ETF is a fund that holds Bitcoin futures contracts instead of actual Bitcoins. A futures contract is an agreement to buy or sell an asset at a predetermined price and date in the future. A futures Bitcoin ETF tracks the price of these contracts, which may differ from the spot price of Bitcoin due to various factors such as interest rates, time value, and market expectations.

The first US-listed Bitcoin ETF that launched in October 2021 was a futures-based one: the ProShares Bitcoin Strategy ETF (BITO). It was followed by several other futures-based Bitcoin ETFs from different providers. These funds have attracted billions of dollars in assets under management (AUM) and trading volume, demonstrating the strong demand for crypto exposure among investors.

However, many experts and analysts argue that futures-based Bitcoin ETFs are inferior to spot-based ones in terms of accuracy, efficiency, and cost-effectiveness. Futures-based Bitcoin ETFs may suffer from tracking errors due to the divergence between futures prices and spot prices. They may also incur higher fees due to the expenses of rolling over futures contracts every month. Moreover, they may not fully capture the upside potential of Bitcoin during bull markets or provide adequate downside protection during bear markets.

Why Does the SEC Matter and What Are Its Concerns?

The US Securities and Exchange Commission (SEC) is the federal agency that regulates the securities markets and protects investors from fraud and abuse. The SEC has the authority to approve or reject any proposed rule changes by stock exchanges that would allow them to list new products such as ETFs.

The SEC has been notoriously cautious and conservative when it comes to crypto-related products. It has rejected more than 30 applications for spot-based Bitcoin ETFs since 2013, citing various concerns such as:

• The lack of regulation and oversight of the underlying Bitcoin market
• The vulnerability of the Bitcoin market to fraud and manipulation
• The insufficient liquidity and transparency of the Bitcoin market
• The absence of a comprehensive surveillance-sharing agreement (SSA) with a regulated market of significant size

An SSA is an arrangement between two or more entities that share information about market activity, clearing activity, customer identity, and other relevant data. An SSA is meant to enhance market integrity, prevent misconduct, and facilitate enforcement actions.

The SEC has indicated that it would be more comfortable with approving a spot-based Bitcoin ETF if there was an SSA between the fund provider and a reputable exchange that dominates the trading volume of Bitcoin in US dollars. However, until recently, no such exchange existed or was willing to partner with an ETF provider.

What Has Changed Recently and Who Are the Contenders?

The crypto landscape has changed significantly since the SEC rejected the last batch of spot-based Bitcoin ETF applications in 2019. Some of the notable developments include:

• The emergence of Coinbase as the leading crypto exchange in the US, with more than 50% market share of Bitcoin/USD spot trading volume, according to data from CryptoCompare.
• The listing of Coinbase on the Nasdaq stock exchange in April 2021, making it a publicly traded and regulated company subject to SEC oversight and reporting requirements.
• The approval and launch of several futures-based Bitcoin ETFs in the US, signaling a shift in the SEC’s stance and attitude towards crypto products.
• The approval and launch of several spot-based Bitcoin ETFs in other countries, such as Canada, Brazil, Germany, and Switzerland, demonstrating the feasibility and popularity of such products.

These developments have encouraged some of the world’s largest and most reputable asset managers to re-file their applications for spot-based Bitcoin ETFs in the US, with one major difference: they have named Coinbase as their exchange partner for SSA purposes.

The following table summarizes the current contenders for a spot-based Bitcoin ETF in the US, along with their filing dates, ticker symbols, and expected decision dates by the SEC.


The SEC has published these applications in the Federal Register, which is the official journal of the US government. This means that the SEC has started its review process and has opened a public comment period to solicit feedback from interested parties.

The SEC has an initial window of 45 days to issue a ruling on each application. However, it can extend this period up to three times, for a total of up to 240 days. Therefore, the earliest possible approval date for any of these applications is in mid-August 2023, while the latest possible denial date is in March 2024.

What Are the Chances of Approval and What Are the Implications?

The chances of approval for a spot-based Bitcoin ETF in the US are higher than ever before, thanks to the improved regulatory environment, the increased market maturity, and the enhanced SSA partnership with Coinbase. However, there is no guarantee that the SEC will approve any of these applications or that it will do so in a timely manner.

The SEC may still have some unresolved issues or questions about the Bitcoin market or the ETF structure. It may also face political or legal pressure from other stakeholders or opponents. It may also prefer to wait and see how the futures-based Bitcoin ETFs perform or how other regulators or jurisdictions react.

If the SEC does approve a spot-based Bitcoin ETF in the US, it would be a historic and transformative event for the crypto industry and the financial markets. It would:

• Boost the legitimacy and credibility of Bitcoin as a mainstream asset class
• Increase the accessibility and affordability of Bitcoin for millions of investors
• Enhance the liquidity and efficiency of the Bitcoin market
• Reduce the premium or discount of other crypto products such as trusts or funds
• Spur innovation and competition among crypto service providers
• Encourage more adoption and integration of crypto by institutions and corporations
• Attract more attention and interest from regulators and policymakers

A spot-based Bitcoin ETF in the US would also have a significant impact on the price and volatility of Bitcoin. It could create a positive feedback loop that drives up the demand and value of Bitcoin while reducing its risk and uncertainty. It could also trigger a wave of arbitrage opportunities that narrow the gap between different markets and platforms. It could also catalyze a new cycle of growth and innovation that propels Bitcoin to new heights.

What Are the Challenges and Risks?

A spot-based Bitcoin ETF in the US is not without its challenges and risks. Some of them include:

• The possibility of rejection or delay by the SEC
• The potential for legal challenges or lawsuits by opponents or competitors
• The exposure to regulatory changes or interventions by other authorities
• The vulnerability to technical glitches or operational failures by service providers
• The susceptibility to hacking or theft by malicious actors
• The exposure to market fluctuations or shocks by external factors

A spot-based Bitcoin ETF in the US would also face some trade-offs and limitations. Some of them include:

• The loss of direct ownership and control of Bitcoin
• The dependence on third-party custodians and intermediaries
• The erosion of the decentralization and privacy of Bitcoin
• The dilution of the scarcity and uniqueness of Bitcoin
• The divergence from the original vision and ethos of Bitcoin

Conclusion

A spot-based Bitcoin ETF in the US is one of the most anticipated and debated products in the crypto space. It has the potential to revolutionize the way investors access and benefit from Bitcoin, as well as to elevate the status and adoption of Bitcoin in the global financial system. It also faces many hurdles and uncertainties, as well as some trade-offs and drawbacks.

The race for a spot-based Bitcoin ETF in the US is heating up, as some of the world’s largest and most reputable asset managers have re-filed their applications with the SEC, with Coinbase as their exchange partner for SSA purposes. The SEC has started its review process and has opened a public comment period for each application. The earliest possible approval date is in mid-August 2023, while the latest possible denial date is in March 2024.

The outcome of this race will have profound implications for the crypto industry and the financial markets, as well as for the price and volatility of Bitcoin. It will also have significant consequences for investors, traders, enthusiasts, and skeptics of Bitcoin.

What do you think about a spot-based Bitcoin ETF in the US? Do you think it will be approved or rejected by the SEC? Do you think it will be good or bad for Bitcoin? Do you plan to invest in it or avoid it? Let us know your thoughts and opinions in the comments below.

Sources:

• (1) What Is a Bitcoin Futures ETF? How Does It Differ From a Bitcoin Spot ETF? | Link

• (2) Spot Bitcoin ETFs are coming. Beware the risk. | Link

• (3) US SEC’s Spot Bitcoin ETF Approval Would Have a Global Impact, Market Awaits Regulator’s Decision. | Link

• (4) Several Spot Crypto ETF Applications Move Closer to SEC Approval as They Enter Federal Register. | Link

• (5) Will the SEC Approve Spot Bitcoin ETFs in 2023? | Nasdaq.

• (6) Spot Bitcoin ETF applications published in Federal Register, SEC review ...| Link

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