The odds of the U.S. Securities and Exchange Commission (SEC) approving a Bitcoin spot exchange-traded fund (ETF) have risen from 10% to 95%, according to Bloomberg ETF analyst Eric Balchunas. He said the positive signals from the SEC chair, the favorable court rulings, and the strong demand from investors are the main factors behind the optimistic outlook. He said the only remaining risks are the SEC finding new grounds for rejection or the Biden administration intervening to stop the process. The Bitcoin spot ETF, which would track the price of the largest cryptocurrency directly, is widely anticipated to launch next week.
The cryptocurrency market is eagerly awaiting the SEC’s decision on several applications for a Bitcoin spot ETF, which would allow investors to gain exposure to the price of Bitcoin without buying or storing the digital asset directly. A spot ETF would invest in actual bitcoins, unlike the existing futures-based ETFs that track the price of Bitcoin derivatives contracts.
What ETF is and Does
In a January 6 Twitter post, Bloomberg ETF analyst, Eric Balchunas wrote:
“Quick reminder: ETFs are depository receipts (this is what SPDR stand for: S&P Depository Receipts) so you do own the btc (or any underlying asset an ETF tracks) your shares (aka receipts) link to proportional btc that has been ‘deposited’ w a custodian. This is why ETFs are SBF-proof.”
He said that even though the investor never gets bitcoin when they sell, those investing in Bitcoin ETFs were never really interested in owning Bitcoin directly but to benefit from the market and make profit in USD. He said that the whole idea of an ETF is to outsource to someone else. He maintained that $40 trilllion in investor funds have no interest in owning Bitcoin directly otherwise, they would do it without going through ETF issuers.
Gensler’s Support for Spot ETF Over Futures
According to Balchunas, the chances of the SEC approving a spot Bitcoin ETF have increased significantly in recent weeks, from 10% to 95%. He cited several reasons for his bullish prediction, such as the positive comments from the SEC chair Gary Gensler, who has expressed support for a spot ETF over a futures-based one, the favorable court rulings that have rejected the SEC’s arguments against a spot ETF, and the strong demand from investors who have poured billions of dollars into the futures-based ETFs.
The Biden Administration Could Stop Spot Bitcoin ETF Approval
Balchunas said the only remaining risks that could derail the approval of a spot Bitcoin ETF are the SEC finding new reasons to deny the applications or the Biden administration stepping in to halt the process. He said the SEC could use the lack of a surveillance-sharing agreement, which is a mechanism to monitor the trading activity and prevent fraud and manipulation, as a potential reason for rejection.
He also said the Biden administration could intervene to stop the approval of a spot Bitcoin ETF, citing concerns over environmental, social, and governance (ESG) issues related to Bitcoin mining.
Decision Via Delegated Authority
Balchunas said that it is unlikely that the SEC would arrive at a decision via a vote. According to him,
“The SEC has never voted on bitcoin ETFs (spot denials or the futures approvals), they were denied or approved via “Delegated Authority” he further added that “And if there were a vote, hard to imagine any poss Gary would vote no bc a) there’s no basis to deny and b) he is literally the one who directed the Staff to put in thousands of man hours to work w 11 issuers on 5-10 rounds of comments, and most recently telling them they want these lined up for 1/11 launch. All that said, we still won’t go to 100% odds until SEC makes it official (just like ESPN won’t go to 100% winning chance until game is literally over regardless of score)”
Low Risks of Rejection
However, Balchunas said he believes these risks are low and that the SEC is likely to approve a spot Bitcoin ETF next week. He said the approval of a spot Bitcoin ETF would be a game-changer for the cryptocurrency market, as it would attract more institutional and retail investors, enhance the liquidity and price discovery of Bitcoin, and potentially boost the value of the digital currency.
The approval of a spot Bitcoin ETF would also benefit the existing futures-based ETFs, as they would be able to lower their fees and track the spot price more closely. Futures-based ETFs currently trade at a premium or discount to the spot price, due to the costs and risks associated with the futures contracts.
A Historic Moment for the Cryptocurrency Industry
The approval of a spot Bitcoin ETF would also create more competition and innovation in the cryptocurrency ETF space, as more firms would seek to launch similar products or offer different features, such as leverage, inverse, or thematic exposure.
It would be a historic moment for the cryptocurrency industry, as it would mark the recognition and acceptance of Bitcoin as a legitimate and investable asset class by the U.S. regulators. It would also pave the way for the approval of other types of cryptocurrency ETFs, such as those based on Ethereum or other altcoins.