It's been almost a decade since the rejection of the first spot BTC ETF filing, and it still appears an approval is nowhere in sight.
On July 1, 2013, Winklevoss Capital Management applied for Bitcoin spot Exchange-Traded Funds (ETF) under issuer “Winklevoss Bitcoin shares”. At the time, the pioneer cryptocurrency was barely $100. This was the first coin-based filing and was denied by the Securities and Exchange Commission (SEC) five years later.
First Spot BTC ETF Application Back in 2013
Since then, many more financial institutions have tried to convince the regulatory agency without success. Almost a hundred firms have made similar attempts, all of which received the same response.
While a spot Bitcoin ETF has received stiff opposition in the US, many others—like the futures ETFs—have gained widespread acceptance. There is also a possibility that more will follow in the future.
ETFs have provided a platform for participation among corporate investors by securitizing and selling digital assets. However, many crypto enthusiasts have clamoured for a spot ETF, which would allow them to access BTC based on its current price, without holding BTC directly.
This differs from the futures ETFs with a smaller market and whose prices are not hinged to BTC’s current price. Rather, a futures BTC ETF is connected to BTC futures contracts.
The SEC Rejects Grayscale’s Spot Bitcoin ETF
In a recent attempt, Grayscale proposed conversion of its flagship product into a bitcoin spot ETF which the SEC rejected. Their request to change Grayscale’s Bitcoin Trust (GBTC) was dismissed after numerous extensions before this ruling.
The rejection order stated:
“This order disapproves the proposed rule change, as modified by Amendment No. 1. The Commission concludes that NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), which requires, in relevant part, that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.”
According to a court filing report, Grayscale challenged the security regulator’s disapproval. The digital asset manager argued that the SEC’s approval of futures traded funds and refusal of a spot product was a breach of the Administrative Procedure Act.
This position was based on the premise that futures offerings are priced according to the underlying market. Crypto proponents also insisted that denying the firm’s request due to risks of market manipulation meant that the regulator was inconsistent.
Grayscale already agreed with Jan Street and Virtue to stop GBTC’s discount in preparation for a spot ETF approval. The investment company was resolute and had planned for all the possible outcomes. Before receiving a verdict, the company also backed up its legal resources to improve its odds.
Meanwhile, another Bitcoin futures-traded fund had joined the list of endorsed investment funds. This request was filed under the Securities Act of 1933 and 1934 (or Act 30 and 34), while the others were filed under the Investment Company Act of 1940 (40 Act). Unlike the rest, the arrangement allows room for a strong argument in favour of spot ETF.
Last year, SEC Chairman Gary Gensler expressed his satisfaction with 40 Act funds citing that they captured all the laws protecting investors. He added that the Act also provides surveillance tools to monitor the market. The SEC’s rejection order from ARK21Shares Bitcoin ETF corroborates this position.