The U.S. Securities and Exchange Commission (SEC) is yet to approve its first Bitcoin Exchange-Traded Fund (ETF) after turning down applications from several firms, including Grayscale, Ark Invest, etc. However, industry key players are very optimistic that things could change with BlackRock’s Bitcoin ETF application and could redefine the entire ecosystem.
Out of the 576 ETF applications filed by BlackRock, SEC has approved 575 and rejected only one. This puts the odds in their favour. Interestingly, JP Morgan has played down predictions that ETF approval could cause a massive revolution in the crypto market.
On February 18, 2021, the Ontario Securities Commission (OSC) approved the world’s first Bitcoin ETF. JP Morgan analysts led by Nikolaos Panigirtzoglou wrote in a report that this groundbreaking move failed to attract institutional investors to the ecosystem. Hence, SEC’s approval would not be any different.
Spot bitcoin ETFs [have]existed for some time outside the U.S., in Canada and Europe, but have failed to attract significant investor interest…Overall, Bitcoin funds, including futures-based and physically backed funds, have attracted little investor interest since Q2 2021, failing to benefit from investor outflows from gold ETFs over the past year or so.
However, JP Morgan recognizes the possibility of BlackRock getting approval considering they have addressed some of the previous concerns. Fidelity Investments has also refiled an ETF application.
Recently, SEC informed the exchanges including Nasdaq and Cboe Global Markets, that applied on behalf of these companies that their applications need more clarity, hence, are insufficient. Sui Chung, chief executive of C.F. Benchmarks, explained that SEC needs more descriptive details around the proposed provision to make a judgment.
Speaking on the physically-backed Bitcoin ETFs and Futures-based funds, JP Morgan explained that the advantages of the former over the other are marginal. Spot ETF offers a more direct and secure way to gain exposure to Bitcoin. The report also disclosed that spot ETF could cause the movement of trading activity and liquidity from the country’s Bitcoin futures market. Specifically, spot Bitcoin ETFs may replace futures-based ETFs.
In 2021, Senior Bloomberg ETF analyst Eric Balchunas stated that Bitcoin ETFs would be a minor catalyst while a physically-backed ETF would be a significant catalyst to the industry’s revolution. He observed that a lot of investors and advisors do not like derivatives.
Some other reports also suggest that the Bitcoin ETF may have minimal impact since most investors have already gained crypto exposure through other products or hold the assets directly. Over the years, Grayscale Bitcoin Trust (GBTC), for instance, has been able to give crypto exposure to institutional investors.