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Crypto investors are eagerly awaiting an imminent ruling from the SEC that will likely approve the trading of a spot bitcoin ETF, more than a decade after initial attempts were rejected.
13 companies have filed for a spot bitcoin ETF:
- Grayscale Bitcoin Trust
- Ark/21 Shares Bitcoin Trust
- Bitwise Bitcoin ETF Trust
- BlackRock Bitcoin ETF Trust
- VanEck Bitcoin Trust
- WisdomTree Bitcoin Trust
- Valkyrie Bitcoin Fund
- Invesco Galaxy Bitcoin ETF
- Fidelity Wise Origin Bitcoin Trust
- Global X Bitcoin Trust
- Hashdex Bitcoin ETF
- Franklin Templeton Digital Holdings Trust
- Pando Asset Spot Bitcoin Trust
How SEC will proceed
There are two components to the applications:
1) A 19b-4 filing, which is a form used by exchanges to inform the SEC of a proposed rule change. In this case, a rule change is required under the Securities and Exchange Act of 1934 because a spot bitcoin ETF is a new product, and the exchanges (NYSE, Nasdaq and Cboe) must provide rules to explain how the product will trade. The SEC must approve the rule changes before the product can trade. This is the filing that is facing a deadline of January 10th for the Ark/21 Shares Bitcoin Trust.
2) Approval of S-1. This is a filing to register a new security with the SEC, in a document that provides information about the specific security. In this case, each company filing for the spot bitcoin ETF has differences in the way the product might be structured. In the case of the Grayscale Bitcoin Trust, an S-3 filing must be approved, which is a simplified security registration form for businesses that have met other reporting requirements.
It’s widely anticipated that once the 19b-4 filings are approved, the SEC will separately approve the S-1 applications of all the ETF applicants at once. However, because the applications are different, that is not a slam dunk: the SEC may decide to approve some, but not all, of the S-1s.
Wide spread in fee
With 13 companies filing for a bitcoin ETF, all of which are similar products, there is substantial interest in what the fee structure will look like.
Fidelity’s Wise Origin Bitcoin Fund has announced it will charge 39 basis points (0.39%). Invesco’s Galaxy Bitcoin ETF has set its expense ratio at 59 basis points, which are waived for the initial six months and the first $5 billion in assets. Ark/21 Shares and Valkyrie will charge 80 basis points.
Grayscale Bitcoin Trust currently charges 2%, but has said it’s committed to lowering the fee once its application to convert to a bitcoin ETF is approved.
Other applicants have not yet announced their fee structure.
Unclear who the main regulator of crypto industry is
All this happens against the backdrop of SEC Chair Gary Gensler’s long-running fight with the crypto industry.
Gensler has fought several court battles against major crypto players, including a losing battle against Grayscale Bitcoin Trust, which won a case against the SEC last summer. In that case, the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC had already approved a futures-based bitcoin product and that it failed to explain why it had refused to approve a spot-bitcoin product. The court said, in essence, the futures and the spot market are “like” products. If the SEC approved one, it logically had to approve the other.
Bitcoin has been ruled to be a commodity, but with the exception of ether, there are no such rulings on other cryptocurrencies. In the absence of clear federal rules the SEC has taken to regulation by enforcement to demonstrate that many cryptocurrencies are securities and it therefore has regulatory authority over much of the crypto industry.
There is an outstanding case against Coinbase, the largest U.S. crypto exchange, where the SEC alleges that the company violated rules requiring it to register as an exchange. In that case, the SEC has alleged that some of the crypto assets traded on Coinbase are securities and fall under the SEC’s purview.
The SEC sued Binance and its founder Changpeng Zhao last June, alleging that Binance and Zhao “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” according to Gensler.
The case is ongoing, but in November the Justice Department settled different charges against Binance and Zhao, wherein Zhao pleaded guilty to money laundering violations and agreed to pay a $50 million fine and step down from his role as the company’s chief executive. Binance also accepted the appointment of a government monitor to oversee the business.
ARK Invest’s Cathie Wood will be our guest on Halftime Report at 12:35 PM Monday, and on ETF Edge Monday at 1:10-1:30 PM ET on ETFEdge.cnbc.com.
