How far are we from a Bitcoin spot ETF?

Author: Qin Xiaofeng, Odaily Planet Daily

On Monday night, the fake news of "SEC approves Bitcoin spot ETF" led the crypto market to experience an illusory and brief "bull market." Upon closer examination, the key factor behind the success of this scam was------manipulating the market using information asymmetry at critical time points of the ETF decision.

In fact, according to the initial timeline, October 16 and 17 were the deadlines for the SEC to make decisions on Bitcoin spot ETFs from six companies, including BlackRock, Bitwise, and Invesco. However, on September 27 and 29, the SEC had already released documents postponing the decision time for the aforementioned ETFs. Due to the lag in market information dissemination, crypto market investors did not have a comprehensive understanding of the ETF-related developments, which led to their misguidance.

Returning to the initial question, how far are we from the emergence of Bitcoin spot ETFs? The answer to this question needs to be approached from two dimensions: one is the timeline, and the other is the regulatory attitude.

ETF Approval Process is Lengthy, ARK & 21 Shares Become a Barometer

From the perspective of the ETF process, the longest time frame is 240 days, during which the SEC must make a final decision on whether to approve or reject. Taking the currently fastest-progressing ARK 21 Shares Bitcoin ETF as an example, we will review its application process to help readers understand. Throughout the application, several key time points emerged, as follows:

• On April 25, 2023, Cboe BZX Exchange filed with the U.S. SEC to list and trade shares of the ARK 21 Shares Bitcoin ETF (this was the initial filing date and the start of a new round of projects) and submitted the corresponding rule changes.
• On May 15, 2023, the ARK 21 Shares Bitcoin ETF, after the rule changes, was officially announced in the U.S. Federal Register, marking the formal start of the ETF approval process. The SEC must make a decision within a maximum of 240 days (180 + 60) from that date.
• The first review period was 45 days, meaning the SEC had to make a decision by June 29, 2023: approve, deny, or postpone; ultimately, the SEC decided on June 15 to postpone. Subsequently, ARK 21 Shares Bitcoin ETF submitted three amendments to the proposed rule changes to address the SEC's concerns.
• The second review period was 45 days, meaning the SEC had to make a decision by August 13, 2023; ultimately, the SEC decided on August 11 to continue postponing.
• The third review period is 90 days, meaning the SEC must make a decision by November 11, 2023. On September 27, the SEC announced another 60-day postponement (on top of November 11), pushing the decision deadline for this ETF to January 10, 2024. "The Commission believes that designating a longer period to make a decision is appropriate to allow sufficient time to consider the proposed rule changes."

The announcement times for other large asset management companies' Bitcoin spot ETFs were generally July 18 or 19, much later than ARK & 21 Shares' product, and they were also postponed by the SEC in the announcements on September 27 and 29 (the original decision time was October 16-17). Odaily Planet Daily has compiled the decision timeline for each ETF, as shown below:

From the above chart, it can be seen that the nearest decision date is for the Global X Bitcoin Trust, which is November 21, 2023, but it is highly likely to be delayed as well. After all, its application time is the latest, and it is currently only in the second review period, while others have already entered the third round, making it unlikely to receive priority approval. A more important timeline is around mid-January next year, when eight ETFs will be awaiting decisions.

It is important to note that the approval result of the ARK 21 Shares Bitcoin ETF will serve as a barometer.

January 10, 2023, is the final decision date for the ARK 21 Shares Bitcoin ETF. If rejected, ARK 21 Shares will have to go through the process again, starting a lengthy 240-day review period, just as they experienced in 2022; the deeper impact is that other companies will also be unable to escape, essentially signaling the end of this round of spot ETF applications------although the final decision time for the subsequent ETFs is in mid-March next year.

Of course, if ARK 21 Shares is successfully approved, it is highly likely that other companies will also be approved simultaneously, as the SEC will not allow any single institution to gain a significant first-mover advantage. Therefore, investors need to closely monitor the developments of ARK 21 Shares from the end of 2023 to the beginning of 2024.

Regulatory Attitude Becomes More Positive, Good Signs

The waiting in the process is actually an overt characteristic, but the more critical factor is the attitude of the regulatory agency, the SEC. Now, the SEC's attitude towards Bitcoin spot ETFs is no longer negative.

Firstly, regarding the applications of various ETFs, the SEC no longer simply and bluntly postpones or rejects them as in the past, but actively engages in communication and dialogue, sending emails to issuers with questions, requiring them to provide explanations or updates to terms and rules. For instance, the latest update from ARK involves many new contents, such as discussions on net asset value calculations, custody issues for crypto assets, and so on. Other topics of concern for the SEC include issues of exchange fraud, concerns about liquidity and transparency in the Bitcoin market, etc.

Although these issues are cumbersome, they are indeed important. The SEC may engage in repeated discussions with issuers regarding these issues------although this may delay the approval process to some extent, it is unavoidable. While we may not see the emergence of spot ETFs in the short term, this attitude is very positive.

Secondly, the SEC did not appeal against Grayscale. In the confrontation with Grayscale, both sides have had their victories and losses, and the court ruling in August this year did not fully side with Grayscale, determining that the SEC lost; for the traditionally tough SEC, such a result is clearly unacceptable, and an appeal seems to be a matter of course. However, until the appeal deadline on October 14, the SEC took no action. This shift in attitude also paves the way for Grayscale's GBTC to transition to a spot ETF application, while also opening the door for more Bitcoin spot ETFs to emerge.

One possible reason for the above changes is that traditional asset management giants like BlackRock, Fidelity, and Invesco play a unique role in government regulation, which also alleviates the SEC's concerns about the future market.

Conclusion

Market expectations for the launch of Bitcoin spot ETFs are leaning towards optimism.

While spot prices may not reflect direct investors' enthusiasm for spot ETFs, GBTC can------its discount is currently at 14.78%, the lowest level since the end of December 2021, and continues to narrow, which also indicates traditional market investors' recognition of the expected attitude towards spot ETFs.

Cathie Wood, CEO of Ark Invest, stated that she believes the probability of the U.S. SEC approving Bitcoin spot ETFs may be increasing. She predicts that multiple Bitcoin ETFs may be approved by the end of 2023 or early 2024, and anticipates that Ark Invest is likely to be among the first to be approved, and that "multiple (companies') Bitcoin ETFs may be approved simultaneously."