The cryptocurrency industry awaits a pivotal decision next week on whether the Securities and Exchange Commission (SEC) will finally approve the first spot Bitcoin exchange-traded funds (ETFs). Multiple Bitcoin ETF proposals from major financial institutions are in their final stage of review, with a deadline for the SEC to approve or deny the filings by January 11th.
Lead Up To The SEC Decision
For years, companies have sought SEC approval to launch Bitcoin ETFs to no avail. These ETFs would allow mainstream investors easy access to Bitcoin exposure through their normal brokerage accounts, without having to directly handle the cryptocurrency. According to analysts, a Bitcoin ETF approval could rapidly accelerate institutional adoption and bring billions in new capital into the crypto space.
Last November, the SEC finally published more specific guidance on what crypto companies would need to satisfy for ETF approval. This prompted a new wave of filings from major financial powerhouses like Fidelity, BlackRock and Grayscale. Now in January 2024, these firms have advanced to the final stage in the approval process by clearing their Form 19b-4 filings.
The SEC has until January 11th to render a decision, at which point the applications would be automatically approved if no action was taken.
|Grayscale Bitcoin Trust ETF
|Valkyrie Bitcoin Trust ETF
|NYSE Bitcoin ETF
|Wise Origin Bitcoin ETF
Mixed Opinions On Likelihood of Approval
Opinions are mixed on whether the SEC will finally greenlight Bitcoin ETF products next week.
In December, 3 out of the 5 SEC commissioners reportedly indicated support for approving spot Bitcoin ETFs. However, the final decision lies with SEC Chairman Gary Gensler. Gensler has given mixed signals, on one hand pushing for more crypto oversight and regulation, while also guiding companies on a path to compliance.
Industry analysts remain cautiously optimistic, believing there is still a better than 50% chance of approval given the progress in dialogue between the SEC and applicants.
On the other hand, advocacy group Better Markets submitted an open letter to the SEC strongly urging them to deny the Bitcoin ETFs. The group argues that significant crypto market manipulation remains unresolved which poses unacceptable risks to retail investors.
Bitcoin Price Impact If ETFs Rejected Again
If the SEC denies the Bitcoin ETFs next week, the reaction across crypto markets is expected to be intensely negative.
Analysts have predicted Bitcoin’s price could plunge below $40,000 if all ETF applications are rejected – shedding up to 10% of its value. On January 5th, a false rumor hit Twitter that the SEC already planned to deny the ETFs. This briefly crashed Bitcoin as much as 7% down to $42,000. The rumor turned out to be fake news, but it exemplified the vulnerability.
The main fear is that after years of delays, another round of rejections could seriously erode investor confidence that regulators will ever approve Bitcoin ETF products.
It would also block mainstream access to Bitcoin investing for at least another year until new proposals could be filed.
Final Amendments Filed To Satisfy SEC Concerns
In the lead up to next week’s decision deadline, several ETF issuers have filed final amendments intended to address areas of concern voiced by the SEC.
Grayscale Investments announced changes around institutions acting as authorized participants (APs), addressing liquidity risk. The firm is also considering a share buyback program if market conditions turned unfavorable.
The NYSE and Valkyrie similarly outlined additional details on liquidity, fees, spreads, and how they would handle hard forks.
By tackling issues around custody, liquidity risk, and market manipulation head on, these firms hope to prove they can operate Bitcoin ETFs safely while protecting investors.
Race For First-Mover Advantage
While investors eagerly await news on whether any spot Bitcoin ETFs will finally gain approval, there is also an intensifying competition between the filers to be first to market.
Being the first SEC-approved Bitcoin ETF in the US would provide tremendous advantage in assets under management, brand recognition and fees earned. Analysts predict whichever ETF launches out the gates first could swiftly gather over $50 billion in assets in its first year.
So while the firms are aligned in pushing the SEC to open up spot Bitcoin ETF investing broadly in the US, each one still wants their particular fund to win that coveted first-mover slot.
Presently Grayscale looks to have an edge in the race if approved, owing to its existing Bitcoin Trust product and connections with institutions. However signs point to fierce competition between elite firms like Fidelity and BlackRock as they fight for both approval and investor dollars.
What Happens Next Week
All eyes are focused on the SEC’s meeting with stock exchange officials on January 11th. The very next day marks the deadline for approving or denying the spot Bitcoin ETF applications.
Industry experts predict things will go one of three ways:
Full Approval – Best case is the SEC approves some or all of the spot Bitcoin ETFs unconditionally. This would trigger an influx of institutional investment and very possibly push Bitcoin’s price over $50k. There would be intense competition between the approved ETF issuers.
Deferred Decision – The SEC could punt on the final decision, requesting more amendments or information. While disappointing to Bitcoin markets initially, this may still reflect progress satisfying the SEC’s concerns. Firms would quickly act to address any outstanding items requested.
Outright Rejection – Worst case would be rejecting all the spot Bitcoin ETF applications. This would likely crash Bitcoin below $40k and signal regulators still see fatal flaws in these products. Without major reforms, it could be years before issuers apply again.
While no outcome is certain, crypto investors remain cautiously hopeful the years of meticulous planning and research from these elite firms will finally meet the SEC’s approval.
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