Don’t expect a deluge of Spot-Bitcoin ETFs anytime soon Experts

[ad_1]

Are we about to see a wave of spot Bitcoin exchange-traded funds (ETFs)?

If you’ve been in crypto for a while, you’ll know that ETFs have long been considered essential to creating a broad market for digital assets. And the recent news that BlackRock, just that, had submitted a proposal to set up such a vehicle raised hopes. If a well-connected, flagship institution like BlackRock were to get into Bitcoin ETFs, an endorsement and the first US crypto ETF certainly couldn’t be far away.

Well, we might have to wait a bit longer, according to a series of experts contacted by CoinDesk.

You have to listen when BlackRock hits the market, Matt Hougan, Chief Investment Officer of Bitwise Asset Management, told CoinDesk TV. Like BlackRock, Bitwise has also filed a new application for a bitcoin spot ETF. And brokerage firm Bernstein added to expectations by saying that the SEC’s position on spot Bitcoin (BTC) ETFs is difficult to hold and the likelihood of approval is quite high.

But others like Opimas LLC CEO and Founder Octavio Marenzi said the app was dead on arrival. They’ve identified a custodian for the assets that the SEC itself says is operating illegally…I’m not sure how BlackRock is making that happen,” Marenzi said.

It’s been a decade since the crypto industry first sought to launch a bitcoin spot ETF and someone who intimately understands the process doesn’t see any approval anytime soon.

Volatility Shares 2x Bitcoin Strategy ETF (BITX) became the first leveraged crypto ETF available in the United States on June 27, and leading its carefully filed application with the SEC was Chief Investment Officer Stuart Barton.

The heist is due to the unregulated nature of crypto exchanges, Barton said. It takes a long time for an exchange to be regulated. It is a multi-year process. It is a step before arriving at an ETF approval. At the moment, there is no exchange that bitcoin is traded on that is regulated.

CoinDesk also spoke with two other industry experts, hedge fund manager James Koutoulas, who is currently fighting the SEC’s motion to subpoena him and a political meme piece targeting Joe Biden and Jai Waterman. , CEO of blockchain-based trading platform Blockstation.

They both poured cold water on the idea of ​​an immediate approval of the bitcoin ETF in the United States. be 100% justified in case of eventual approval.

It’s not a foregone conclusion that an ETF will be approved, Koutoulas said. Just look at the conflicts (example: lawsuit against Coinbase) for that. Waterman said the SEC was in a difficult position with political pressure, but it would still take a long time.

ETFs will not be approved until the Coinbase lawsuit is settled or dismissed, Waterman said. They can make the switch and use someone else instead of Coinbase, but that’s also tough because regulators will want an organization with strong credibility and no pending lawsuits against them.

BlackRocks CEO Larry Fink, however, seems convinced. He went from saying that fans of the asset class were using it heavily for illicit activities to saying that bitcoin could revolutionize the financial system, but a recent comment indicated that even he thought an endorsement from the ETF could take time.

We hope that, as in the past, we can work with our regulators and get the case approved one day, and I have no idea what that will ever be, but let’s see how it all plays out, Fink said more early this month. .

XRP decision adds pressure on SEC

In addition to the endorsement of the leveraged product, the BlackRocks app, and the resulting market optimism, the XRP decision has put collective pressure on the SEC, experts say. Last week, a US court ruled partly in favor of Ripples, saying that the sale of Ripples XRP tokens on exchanges and via algorithms did not constitute investment contracts. The XRP decision could support the Coinbases case, Waterman said. This could be another pressure point besides these ETF applications. However, I believe the SEC will appeal the Ripple decision.

Koutoulas said the XRP ruling dealt a very heavy blow to the SEC because it confirms everything the crypto law community has argued in terms of the SEC’s overreach. Just hours after their devastating loss in XRP, the SEC rushed to court to harass me with a subpoena, admitting that whether or not our political coin meme is a security is for another day, Koutoulas said, citing the SEC subpoena.

It is clear that this subpoena is not for a legitimate investigation, but rather a weapon of the federal government against cryptocurrency and political opponents.

Leveraged ETF vs spot-bitcoin

Lawyers for waterman manager Grayscale added more pressure on the SEC when they slammed regulators for approving Bartons’ leveraged bitcoin-based ETF after rejecting the Spot Bitcoin ETF’s application by Grayscales. They sent a letter to the United States Court of Appeals for the District of Columbia Circuit alleging that the SEC had approved a leveraged ETF that is even riskier than Grayscales’ own bitcoin ETF. Grayscale has been embroiled in a lawsuit with the SEC over the rejection of its own spot bitcoin ETF application. Grayscale is a subsidiary of Digital Currency Group, the parent company of CoinDesks.

Barton said the approval process for a leveraged ETF and a spot-bitcoin ETF is simply different. The difference between our leveraged ETF and a bitcoin spot ETF is that our ETF tracks bitcoin futures that trade on a regulated exchange, the Chicago Mercantile Exchange (CME), but the offered bitcoin spot ETF provides to reference bitcoin cash that is not traded on any regulated exchange, Barton explained.

“The methodology is extremely difficult”

Barton said the methodology in place for spot-bitcoin ETF approval puts the SEC in a very powerful position due to a 19b-4 listing rule. The rule requires self-regulated entities to seek SEC approval before making changes to trading rules. In this case, NASDAQ and Cboes BZX Exchange are asking to take over compliance responsibilities since Coinbase, the chosen monitoring partner is an unregulated exchange, does not meet SEC requirements. As part of this rule change, NASDAQ and Cboe BZX seek to fulfill some of Coinbase’s compliance obligations through a surveillance sharing agreement. Coinbase is so far an unregulated exchange and therefore does not currently meet the requirements of the SEC.

The challenge with an ETF application that needs a 19b-4 is that the exchange needs a specific approval ruling from the SEC to get listed, and that puts the SEC in a very powerful position, a Barton said.

Exchanges not only have to argue that the ETF falls under a certain set of ETF rules, but also have to answer a much broader set of questions from the SEC, because they are really asking them, if it please can we change the rules of our exchange to to list this new product as a new ETF and very few 19b-4s are filed and this can be a very long process.

The five Cboes ETF applications: Wise Origin, WisdomTree, VanEck, Invesco Galaxy and ARK 21Shares, and BackRock’s iShares Bitcoin Trust filed 19b-4 applications. The weakness of an application that needs 19b-4 is that you need a specific approval decision to get listed by the SEC and that puts the SEC in a very powerful position, Barton said. They don’t have to argue with you about whether it’s a good investment. They can dig deeper because you’re really asking them please can we change the rules of our exchange to list this new underlying product as a new ETF and very few 19b-4s are filed and that’s a very long process.

Normally when you come up against a regulator you try to take the easy route and that is a very difficult route to the market. When asked why BlackRock applied despite the difficult path, Barton said he wanted to be first in case the pressure got to the SEC.

“If anyone, it will be BlackRock”

Overwhelmingly, experts polled by CoinDesk predicted that while it will take time, and possibly longer than the crypto community thinks, BlackRocks is best positioned to be ranked first in the ETF race. .

If anyone is to be approved, it will be BlackRock, Koutoulas said. (Because) BlackRocks has a proven track record with around 500 ETF applications approved and only one definitely rejected, and the US government does so much business with BlackRock.

Such an organization can stand the test of time and it can work at it for years. They may have to adjust and adjust, but eventually with the necessary financial resources, they will get there, Waterman said.

While BlackRock may be considered a favorite by many, Barton points out that smaller organizations often have the advantage of being nimble.

CORRECTION (July 18, 05:30 UTC): Corrects Blockstation descriptor in 11th paragraph.

DISCLOSURE

Please note that our Privacy Policy, Terms of Use, Cookies and Do Not Sell My Personal Information have been updated.

A leader in news and information about cryptocurrency, digital assets, and the future of money, CoinDesk is a medium that strives to achieve the highest journalistic standards and adheres to a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial staff, may have exposure to DCG stock in the form of stock appreciation rights, which vest over a period of years. CoinDesk reporters are not permitted to buy shares in DCG directly.

Learn more about Consensus 2024, the oldest and most influential CoinDesks event bringing together all aspects of crypto, blockchain, and Web3. Visit consensus.coindesk.com to register and purchase your pass now.

[ad_2]