Bitcoin Spot ETF: Developments And Update

Bitcoin's strong start to the week has been attributed to improving sentiment around the possibility of a spot BTC ETF, following significant developments on Friday.

SEC Concedes Defeat

On Friday, the SEC allowed a critical deadline in the Grayscale ETF case to pass.

The SEC has repeatedly denied Grayscale's request to convert their GBTC Trust into a spot BTC ETF, on the grounds that the mechanisms Grayscale intended to use to prevent market manipulation were not robust enough. Grayscale took the SEC to court, arguing that the proposed measures were already used for Bitcoin futures ETFs, and track the spot market almost perfectly. The judge sided with Grayscale, and ordered the SEC to reassess their application.

The SEC could have appealed the decision, but did not—likely recognizing that the writing is on the wall following several high-profile defeats in recent months.

Not A Done Deal Yet

It's important to understand that the fact the SEC didn't appeal the ruling does not mean the ETF will automatically be approved. Grayscale's application still has to go through the formal process, and the SEC could find other reasons to deny it. However, this is seeming less and less likely. Having been labeled "arbitrary and capricious" by the court, it would not be a good look for the agency to come up with another pretext to delay a spot ETF, only to end up in court once again, in front of increasingly unsympathetic judges.

Grayscale's odds are starting to look good. And if Grayscale's application is going to be approved, then it's highly likely that many or all of the recent spot ETFs will be approved, to avoid the problem of the first one gaining a huge advantage in the market. Ark Invest's application is due to receive its final decision earliest, on or before January 10, 2024.

As a result of these developments, Bloomberg ETF analyst James Seyffart gives a 90% chance of approval by early January, up from his earlier estimate of 75%.

Further Promising Indications

The SEC has, by all accounts, been downright obstructive towards organizations seeking to launch a spot bitcoin ETF. The latest court decision may end up effectively compelling them to approve the ETFs, but there are new indications that they are finally engaging more constructively with applicants.

For example, Ark recently filed updated details that clarify some points about Bitcoin's ESG credentials and illicit transactions.

This indicates that (as previous evidence also suggests) the SEC is working behind the scenes directly with prospective issuers.

Today's sharp move higher for bitcoin suggests that traders might finally be taking the possibility of approval seriously. One way or another, with the clock counting down to January 10, 2024, in three months time the landscape for crypto is going to look very different than it does today.

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