Pressure Mounts On SEC To Reconsider Spot Bitcoin ETF

Pressure Mounts On SEC To Reconsider Spot Bitcoin ETF thumbnail

The Bitcoin ecosystem is a sensitive space. There are many decisions, news and regulations that are made by large financial institutions, governments, and business leaders, making it vulnerable to wild price fluctuations. A proposal for a bitcoin spot exchange traded fund (ETF), could cause a price boom in bitcoin that will have a huge impact on investors. The potential impact of this ETF filing is very promising. Stakeholders and crypto enthusiasts are looking for a way to get approval from the U.S. Securities and Exchange Commission.

CEO at Grayscale Investments, Michael Sonnenshein made a smart move by meeting with U.S. financial regulators in a bid for approval for an pending ETF request. The request is to convert the Grayscale Bitcoin Trust (GBTC) into ETF: This proposal could generate $8 billion in returns for investors, as reported CNBC ..

What has held up spot ETF approval? The bitcoin spot ETF looks promising, but there’s still uncertainty about its approval. The SEC has given the green light to the bitcoin futures ETF, but turned down the bids for the spot-eTF. This may seem more discriminatory than it is. However, the SEC claims that the spot ETF is a high-risk investment due to possible fraud and manipulation in bitcoin markets as well as volatility in bitcoin price. The commission rejected a few bids, stating that Grayscale has not provided sufficient protection to address the risks associated with trading spot ETFs. The premises for SEC concerns as reported by CoinDesk are:

  • Wash trading
  • Prominent individuals influencing bitcoin price
  • Hacking and malicious control of trading platforms and the Bitcoin network
  • Scam and fraud on bitcoin trading platforms and manipulation of the Tether (USDT) stablecoin.
  • Trading based on nonpublic information, including false and misleading information

What Are The Estimated Grayscale Holdings?

The Grayscale Bitcoin Trust is the largest publicly traded Bitcoin fund in the world. The problem with the approval’s setback was that GBTC holds approximately 3. 12% of the world’s BTC.

The assets under management (AUM) of Grayscale are about $14 billion worth of BTC. The GBTC market price per share of $19. 05 and holdings per share of $27. 12 as of May 26, 2022, as stated by Grayscale. Hence, broader access to bitcoin is very much certain as GBTC has up to 700,000 investors. This is huge! This is huge! It’s been reported that there are over 4,000 petitions seeking the approval of the bitcoin spot ETF already, with many more to come as the July 6 deadline approaches.

Understanding A Bitcoin Spot ETF

A Bitcoin ETF enables retail and average investors to access or invest in bitcoin without directly possessing the asset.

In response to investors’ increasing demand for bitcoin, bitcoin ETFs were created to allow people to trade bitcoin just like stocks. An average investor can’t afford one bitcoin because bitcoin is so popular and the price has risen to tens of thousand of dollars. A bitcoin funds-holding company would offer an ETF that allows investors to trade bitcoins on an exchange.

The ProShares Bitcoin Strategy ETF was the first ever bitcoin futures ETF to be traded. The SEC approved BITO on October 19, 2021, and it is traded on the Chicago Mercantile Exchange (CME). It took no time at all before bringing in massive investment into bitcoin, trading up to $1 billion in assets within a few days.

A contract is made to exchange bitcoin for an asset at a set price and date. The contract will be executed at the price agreed upon by both parties, regardless of whether bitcoin’s price rises or falls. However, the difference between a spot and futures ETF is that a spot ETF offers an exchange at the current price of bitcoin at the time of purchase/sale. This is done by using a real-time bitcoin price to trade and exchange contracts, rather than a future price.

Headway On A Spot ETF

Recently, there has been some headway with a spot ETF approval because the SEC approved Teucrium’s future ETF under similar conditions as the basis for Grayscale’s proposal:

“Most importantly, the SEC has paved the way to ultimately approve spot Bitcoin ETFs like GBTC. First we saw the approval of the first Bitcoin futures ETF regulated under the ’40 Act. Second, we saw the first Bitcoin futures ETF regulated under the ’34 Act and ’33 Act. The next natural step is to see the first Bitcoin spot ETF regulated under the ’34 Act and ’33 Act, like GBTC. We believe that to do otherwise would be ‘arbitrary and capricious’ and “unfair discrimination” in violation of the APA and ’34 Act.” — Grayscale

The SEC observed that the Teucrium ETF is integrated into the CME’s protocol, hence if someone were to disrupt the Teucrium ETF, they would have to manipulate the CME’s market in the process. Grayscale could be persuaded to create the bitcoin spot ETF using a specialized blockchain protocol. The protocols would only be accessible by approved brokers and authorized SEC agents. They would be able regulate all types of transactions that are conducted via this protocol. They would be able prevent illegal transactions and reduce the risks associated with spot ETFs if it was stored in a secure command within their jurisdiction.

Conclusion

What happens once a spot ETF gets approved?

People want a spot ETF, in fact, a survey by Nasdaq shows that 72% of 500 financial advisers would be more comfortable with trading the crypto market if the spot ETF got approved.

A Grayscale Bitcoin Trust would be converted into a New York Stock Exchange-traded Fund (NYSE). This would be a significant milestone. This would open the door to wider adoption of the digital asset as investors and regular people will have access to bitcoin in a manner similar to trading stocks.

Bitcoin spot eTFs will accept the non-bitcoin-savvy. This means that anyone can access bitcoin via a bitcoin ETF without needing to understand how bitcoin works or deal with the risks associated with owning bitcoin. With spot ETF approval, the bitcoin market could grow significantly and the sentiment could be quite bullish.

Recalling what happened when the ProShares ETF was approved, a whopping $550 million in investments was recorded on the first day of ETF trade. Moreover, bitcoin surged to a record-breaking price of $66,900.

This is a guest post by Joseph Ayomide. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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