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May 27, 2024

Bitcoin ETF Hopes Dashed Again As SEC Delays Spot Approvals

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Jan 5, 2024

The cryptocurrency market plunged this week as hopes for imminent approval of spot bitcoin exchange-traded funds (ETFs) were dashed yet again. The US Securities and Exchange Commission met with stock exchange officials on January 4th to discuss spot bitcoin ETF proposals from several asset managers, but ultimately decided to delay making a final decision.

Lead Up To The Non-Decision

For months, crypto investors had been anticipating that the SEC would finally approve spot bitcoin ETFs in early 2023. Several asset managers, including Fidelity and Galaxy Digital, filed proposals over the past year outlining how they would run spot bitcoin ETFs. Unlike bitcoin futures ETFs which already trade in the US, spot bitcoin ETFs would hold actual bitcoin as their underlying asset, allowing more direct exposure to bitcoin price moves.

In December, Bloomberg reported that the SEC was nearing a verdict on spot bitcoin ETFs and was likely to approve at least one spot ETF in January. This report ignited a relief rally, sending bitcoin from under $17,000 to back over $23,000 by the new year. Crypto Twitter exploded with speculation that approval was imminent.

As the January verdict drew closer, crypto prices continued climbing. Bitcoin traded above $45,000 on January 3rd, nearing its 2022 highs. However, some crypto analysts warned investors not to get over-eager, noting the SEC could still delay yet again.

“I think the market has priced in more of an approval than delay,” said Kevin Kang, founder of crypto research firm BK Coin Capital.

The Letdown

On January 4th, the SEC met with stock exchange officials to discuss pending spot bitcoin ETF applications. With hopes running high, any decision short of approval was bound to disappoint.

In the hours after the meeting concluded, rumors began circulating that no verdict had been reached and a final decision was delayed once more. Crypto prices immediately plunged, with bitcoin crashing under $41,000 within hours – a 10% single-day loss. Some investors cried manipulation, accusing spot ETF issuers of leaking information early to profit from the selloff.

One week later, bitcoin hovers near $38,500 as uncertainty continues weighing on market sentiment. Most analysts believe SEC approval is still likely at some point, but the ongoing delays have left investors increasingly doubtful.

“The recent crash made me reconsider my optimistic outlook,” said Dan Morehead, CEO of Pantera Capital. “Maybe the spot bitcoin ETF dream is further away than I thought.”

Why The Delay?

The SEC has yet to provide an official explanation for punting its verdict to a later date. However, industry insiders highlighted several factors potentially influencing the regulator’s reluctance.

Lingering Manipulation Concerns

The SEC maintains that bitcoin markets remain vulnerable to manipulation. Unlike stocks and commodities, bitcoin largely trades on unregulated offshore exchanges. The recent FTX collapse also drew attention to potential misconduct such as wash trading and insider self-dealing.

While leading US exchanges like Coinbase adhere to stricter oversight, the SEC worries manipulative activities on foreign platforms could still undermine bitcoin spot ETFs trading domestically. The regulator wants further assurances and surveillance measures before approving retail spot exposure.

Bitcoin Market Infrastructure Still Immature

Industry consultants also suggested the bitcoin market lacks sufficient infrastructure to support smoothly-functioning ETFs. The spot bitcoin market remains highly fragmented across various trading venues and relies on an emerging custodial sector. Moreover, questions linger around securing insurance and banking services to backstop ETF operations.

“Operational readiness is lacking,” said Alyse Killeen, founder of bitcoin-focused VC firm Stillmark. “Service provider capacity may still be too limited to offer the reliability and availability needed for a publicly-traded product.”

Hesitance To Greenlight First Mover

According to Bloomberg analyst Eric Balchunas, the SEC has reservations about crowning any one issuer as the first spot bitcoin ETF operator. Regulators prefer establishing a framework for evaluating all proposals concurrently rather than handing a major head start to a single asset manager.

“They don’t want to pick a winner,” said Balchunas. “So they delay and make them all wait.”

Under this theory, the SEC will only approve multiple spot ETFs simultaneously to prevent advantaging any first mover. This suggests additional delays until several polished applications make the cut.

What Happens Next?

While the SEC’s non-decision clearly upset many crypto investors, most industry experts believe spot bitcoin ETF approval remains inevitable – though the timing remains uncertain.

Months More Of Waiting Possible

Unless new information emerges specifically addressing the SEC’s lingering concerns, several more months of delays may occur while regulators take a methodical approach. Some analysts even push approval timelines out to late 2023 or 2024.

“This spot ETF drama could persist throughout the year,” predicts Matthew Tuttle, CEO of Tuttle Capital Management. “The SEC takes forever to make decisions.”

In the meantime, issuers will likely revise and enhance their filings to align with perceived SEC preferences. Whether through improving market monitoring capabilities, shoring up custodial arrangements, or communicating plans to coordinate with other prospective ETF operators, spot ETF proponents have more work ahead to appease cautious regulators.

“It’s not a straight path to approval,” cautions Ben Melnicki, Global Head of ETFs at crypto investment firm DCG. “The SEC provided feedback in this recent meeting that will help guide further amendments to the proposals.”

Eventual Approval To Spark Rally

Despite lingering uncertainties about timing, most observers still expect an eventual green light once regulatory concerns get fully addressed. The prospect of simple, liquid retail exposure to bitcoin prices should prove far too enticing for the SEC to permanently resist. No bitcoin futures ETF application faced outright rejection – merely delays before eventual approval.

Industry consultants forecast a swift torrent of investment flowing into newly-approved spot ETFs. Surveys show nearly 90% of financial advisors intend to buy bitcoin for client portfolios post-approval. This anticipated spike in demand could send prices skyrocketing again.

“A spot bitcoin ETF remains the holy grail for crypto,” reminds crypto investor Anthony Pompliano. “When it finally launches, bitcoin easily reaches $100K.”

So while the latest non-decision keeps the crypto market waiting a while longer, bitcoin bulls continue chasing visions of future price euphoria upon the SEC finally opening the spot ETF floodgates.

Tables

Here is a table summarizing the potential outlook over the coming year depending on if/when spot bitcoin ETFs get approved:

Scenario Expected Timing Bitcoin Price Impact
No approval Never Bearish – Investors give up hope
Approval in Q2 2023 April-June Very Bullish – Rally to ~$75K
Approval in Q4 2023 October-December Bullish – Rally to ~$65K
Approval in 2024 12+ months away Modestly Bullish – Rally to ~$55K

And this table shows the largest asset managers seeking spot bitcoin ETF approval:

Firm Filing Date Key Details
Fidelity March 2022 Would custody bitcoin directly
Galaxy Digital April 2022 Partnered with asset manager FS Investments
Grayscale December 2022 Converting existing Bitcoin Trust to ETF structure
Valykrie January 2023 Focusing on environmentally friendly bitcoin mining

The repeated delays clearly disappointed investors who got overeager for quick approval. But most experts maintain confidence the SEC will eventually let spot bitcoin ETFs through. When that day comes, a wave of new institutional and retail money may propel bitcoin and crypto markets to new heights. Yet for now, the waiting game continues into 2023 and possibly beyond.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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