The global financial community has been closely monitoring regulatory updates in the United States concerning bitcoin exchange-traded funds (ETFs). A pivotal moment occurred when the Securities and Exchange Commission (SEC) had to make a critical decision regarding transforming the Grayscale Bitcoin Trust into a traditional spot bitcoin ETF. The approval of this conversion, coupled with the subsequent spread of false information about the approval, resulted in profound and wide-ranging implications for the Bitcoin industry and its investors.
- A spot bitcoin ETF would give investors exposure to the world’s largest cryptocurrency by market capitalisation without having to own it.
- Bitcoin’s price briefly spiked to almost $30,000 after a false report regarding a spot ETF approval was circulated.
- However, the U.S. Securities and Exchange Commission (SEC) denied all applications for spot bitcoin ETFs, including Grayscale’s, citing concerns that the applicants had not demonstrated the ability to safeguard investors against market manipulation.
- The SEC has explicitly refuted the approval reports. It has initiated additional proceedings to assess whether proposed spot bitcoin ETFs from major financial entities such as BlackRock, Invesco, Valkyrie, and Fidelity should be approved or rejected.
- Grayscale earlier sued the SEC, arguing that because the agency previously approved certain surveillance agreements to prevent fraud in bitcoin futures-based ETFs, the same setup should be satisfactory for Grayscale’s spot ETF since both spot and futures funds rely on bitcoin’s price.
- The application for a spot bitcoin ETF is still under review by the Securities and Exchange Commission. At the same time, the price of the world’s largest cryptocurrency surged after rumours on social media that the fund had been approved.
Let’s delve into the details.
Bitcoin’s price experienced a notable uptick, surpassing $28,000 for the first time in a week, all amid a volatile Monday that featured an inaccurate post about a spot bitcoin ETF approval. In the early hours of the U.S. trading session, a false report claimed that BlackRock’s proposed spot bitcoin ETF had been greenlit, resulting in a sudden surge in trading activity and heightened market volatility. This report triggered a 5% surge in the bitcoin’s price, briefly nudging it toward the $30,000 threshold.
NB: Investors seeking immediate approval should exercise caution, as there are bound to be further obstacles and uncertainties.
The chain of events began when Cointelegraph posted on X that “SEC approves iShares bitcoin spot ETF.” However, within 30 minutes, the tweet was modified to include the word “reportedly.” Eventually, the tweet was taken down entirely, and Cointelegraph issued an apology, acknowledging that their initial tweet had inadvertently contributed to the spread of erroneous information.
According to an X post by Lookonchain, several crypto traders incurred losses when they purchased bitcoin in response to the tweet. Notably, a significant bitcoin holder spent $600,000 to acquire 20.5 wrapped bitcoin but sold it for only $563,000 once the news was debunked.
Significant liquidations occurred as market volatility made a comeback. In the last 24 hours, data from CoinGlass indicates that 40,723 traders faced liquidations, resulting in a total loss of $182.4 million in cryptocurrency. Most of these liquidations were associated with short positions, totalling $136.36 million, with Bitcoin trades accounting for $100 million of these losses.
SEC backs off Grayscale ruling
The Grayscale Bitcoin Trust (GBTC) has long been a popular investment vehicle for individuals seeking exposure to bitcoin beyond the conventional financial markets. A noteworthy shift in the regulatory landscape occurred with the recent decision by the SEC to allow the transformation of GBTC into a spot bitcoin ETF. This decision held significant implications. Firstly, it set to broaden access to bitcoin while subjecting it to regulatory oversight, benefiting both institutional and retail investors. Secondly, a spot bitcoin ETF could inject greater liquidity into the Bitcoin market. In contrast to closed-end funds like GBTC, which are traded on stock exchanges but often exhibit substantial deviations from the actual bitcoin price, ETF shares could be bought and sold throughout the trading day. This liquidity boost could reduce the premiums or discounts associated with GBTC, aligning it more closely with the underlying asset.
Apart from the above, one of the most anticipated advantages of a spot bitcoin ETF is its potential to enhance price discovery and its taxation implications. The structure of the ETF may offer investors certain tax benefits. However, it’s worth noting that the SEC’s primary concern has revolved around applicants’ ability to demonstrate their capability to protect investors from market manipulation, a prevalent issue within the cryptocurrency market.
In a recent development, the D.C. Circuit Court of Appeals has ordered the SEC to reevaluate its previous rejection of the conversion request. Circuit Judge Neomi Rao supported Grayscale’s argument, asserting that its proposed product bears no significant differences from Bitcoin futures exchange-traded products (ETPs) already trading in the United States.
After debunking the false report, Bitcoin saw a temporary retreat from the $30,000 mark but managed to hold strong above $28,000. This positive price movement followed the decision of the U.S. Securities and Exchange Commission not to appeal a recent Grayscale court ruling. This indicates that the ruling has the potential to compel the regulator to review Grayscale’s application for a spot bitcoin ETF. And if this approval happens, it is anticipated to open up new possibilities for several sovereign pension funds, IRAs and 401k, and other institutions that, before this point, may not have had access to digital asset investment opportunities.
We can guessly say it’s quite possible an approval will come in the first quarter of next year, once the SEC completes its full assessment. If the application gets approved, it will be a positive step forward for the institutional adoption of crypto.
What is bitcoin ETF?
A Bitcoin ETF, or Exchange-Traded Fund, is a financial product that tracks the price of bitcoin. It allows investors to gain exposure to the price movements of bitcoin without having to directly buy, hold, and store the cryptocurrency themselves. The bitcoin ETFs are seen as a more convenient and regulated way for traditional investors to gain exposure to bitcoin’s price movements, compared to directly buying and holding bitcoin on cryptocurrency exchanges. They offer liquidity and ease of trading and are often perceived as less risky regarding custody and security.
2. How does an ETF work?
A financial institution or asset management company creates a fund specifically designed to track the price of bitcoin. This fund holds a reserve of actual bitcoins or, more commonly, bitcoin futures contracts and other financial instruments tied to bitcoin’s price. This fund is structured as an exchange-traded fund, which means it can be bought and sold on traditional stock exchanges like stocks. This makes it easy for investors to access bitcoin price exposure through their regular brokerage accounts.
3. How bitcoin ETF price is decided?
The price of the bitcoin ETF shares is usually designed to mirror the price of bitcoin itself. The fund’s performance is directly tied to the underlying bitcoin price minus any management fees and expenses.
4. Bitcoin ETFs vs. Blockchain ETFs
Bitcoin ETFs track the price of bitcoin and trade on standard stock exchanges, whereas Blockchain ETFs track the stock market prices of corporations that have invested in blockchain technology in their fund.