According to a Bloomberg Analyst, the SEC is Positioned to Give the Green Light for Bitcoin ETF Approval

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Last Updated on December 28, 2023 by Bitfinsider

With the approaching deadline for Bitcoin ETF applications, anticipations are increasing that the US Securities and Exchange Commission (SEC) will grant approval to spot Bitcoin ETFs.

Erich Balchunas, an ETF expert at Bloomberg, has illuminated a possible snag, stating that the SEC will probably demand explicit language concerning cash-only creations and a duly executed agreement with an authorized participant (AP).

Balchunas posits in a recent X (formerly Twitter) post that although Grayscale, a prominent global crypto asset manager, has satisfies these prerequisites, its current edge in terms of volume and embedded assets might present the SEC with a difficulty in preserving a “level playing field.”

As per Balchunas, the principal objective of the SEC is to guarantee equitable competition for all issuers that meet the requirements. As a result, the commission might consider Grayscale’s prospective transformation of its Grayscale Bitcoin Trust (GBTC) into an ETF to be unjust, given the significant initial advantage it would obtain.

With $20 billion in embedded assets and $150 million in daily embedded volume, GBTC would immediately rank among the top 1% of all ETFs, according to Balchunas.

The SEC is in a precarious position, according to the ETF expert, because granting approval to GBTC could potentially result in the SEC act as a “kingmaker,” thereby influencing the outcome to benefit a solitary participant.

Furthermore, Balchunas elucidates that incorporating explicit language regarding cash-only infusions in Bitcoin ETF applications might not diminish their appeal to potential investors.

A notable benefit is that grantor trusts, including GBTC, are exempt from fund-level taxation, thereby addressing a substantial concern. Furthermore, upon scrutinizing the estimated 450 cash-only exchange-traded funds (ETFs) presently available, it is observed that their spreads and premium/discount ratios fall within rational intervals.

In general, the SEC is confronted with the task of maintaining equity while taking into account the possible benefits that specific issuers may have in terms of embedded assets and trading volume.

In order to promote fairness among all ETF issuers involved, the SEC mandates explicit language on cash-only creations and signed agreements with authorized participants. However, in light of GBTC’s significant market advantage, the commission must meticulously assess the repercussions of granting approval.

In essence, the SEC’s ruling will have a profound impact on the competitive environment surrounding Bitcoin exchange-traded funds (ETFs) and its participants. This may have repercussions on the achievements of well-established firms like Grayscale, as well as industry titans like BlackRock and Fidelity.

At the moment, Bitcoin is valued at $42,800, indicating a marginal surge of 0.6% over the preceding twenty-four hours. Conversely, the dominant cryptocurrency has witnessed a price decline of 2.3% over the preceding week.

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