The SEC Again Delayed a Bitcoin ETF, But Such a Fund Is Likely Still Coming
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A court decision is expected soon on whether the SEC erred in denying Grayscale’s request to convert its Grayscale Bitcoin Trust into an ETF.
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The Securities and Exchange Commission delayed yet another application to launch a
Bitcoin
exchange-traded fund, pushing it back at least until the fall. The agency hasn’t shown many signs that it has warmed up to approving such funds, but it appears the momentum to offer them is still moving in crypto’s favor.
Friday’s decision concerned the proposed ARK 21Shares Bitcoin ETF that Cathie Wood’s ARK Investment Management is seeking to launch. ARK, along with a plethora of firms including BlackRock (ticker: BLK), WisdomTree (WT), and Invesco (IVZ), have applied to open funds that would hold spot Bitcoin. That is in contrast to the kinds of Bitcoin funds already on the market, such as those that hold futures like the ProShares Bitcoin Strategy (BITO) and those that trade more like closed-end funds such as the
Grayscale Bitcoin Trust
(GBTC).
The SEC in the past has rejected such applications, arguing that crypto trading platforms have insufficient controls against fraud and manipulation. But in the most recent round of applications, the fund companies added new provisions they say would solve that problem.
The SEC on Friday said it would ask for public comment on an aspect of ARK’s application, effectively delaying it for several weeks. But a court could force the agency’s hand much sooner.
Any day now, the U.S. Court of Appeals for the D.C. Circuit is expected to decide whether the SEC erred in its reasoning for denying Grayscale’s bid to convert GBTC, which has $18.3 billion under management, into an ETF. The judges on the case sounded skeptical in a March hearing about why the agency could treat applications for Bitcoin futures ETFs differently than those for spot Bitcoin.
It is unlikely that the judges will outright order the agency to approve such funds. Rather if Grayscale wins the case, the SEC could decide to attempt to turn down the applications for some other reason. In the most extreme scenario, it could try to walk back its approval of Bitcoin futures ETFs.
But the path of least resistance still seems to lead to such products eventually being approved.
The SEC declined to commment and ARK didn’t immediately respond to a request for its views. Wood, the ARK CEO, said in a Bloomberg interview this week that she expected the SEC would approve many Bitcoin ETFs at once, if it decided to allow such funds, rather than give the nod to ARK’s first.
Some crypto firms have said they expect Bitcoin ETFs to create billions of dollars in demand for the token, though there are reasons to be skeptical. One is that the move might just lure investors away from other products that invest in Bitcoin.
Rather than crypto prices, the biggest beneficiaries of an ETF approval could be holders of GBTC. The fund right now trades at about a 25% discount to the value of the Bitcoin it holds, a gap that would be erased if converted into an ETF.
To be sure, GBTC used to trade before the court hearing at a discount nearly twice as big, and if history is any guide, there will be many more twists and turns before a Bitcoin ETF wins approval. But the Friday delay of ARK’s application isn’t so much a setback as a bump in the road.
Write to Joe Light at joe.light@barrons.com