Bitwise ETF Update Is Regulatory Chess Move

Billion-dollar cryptocurrency asset manager Bitwise has filed an update to its application to the SEC to launch a spot Bitcoin ETF. The 139-page amendment contains extensive academic references about Bitcoin, but focuses on the relationship between the futures market price and spot pricing.

This update appears to be a strategy that anticipates the SEC's next move, and seeks to circumvent it—essentially treating the application process as a game of regulatory chess.

Futures Vs Spot

The SEC has already approved several futures ETFs, but has—so far—declined to approve a spot ETF. As we've explored before, a spot ETF would potentially be a game-changer for the crypto space, since ETF providers would need to hold BTC, rather than relying on a paper derivative. Interest in a spot ETF would translate directly into market demand for BTC. The size of the asset managers with outstanding applications would open the way for billions of dollars of institutional money to pour into Bitcoin.

However, the SEC has repeatedly denied previous applications, on the grounds of concerns about price manipulation. It has not accepted the argument that the protections in place for the futures market could also apply to the spot market.

The Commission has repeatedly cited the “mixed” or “inconclusive” academic record regarding the lead-lag relationship between spot and futures markets as a core reason it believed that the first prong was not met in past disapproval orders.

Bitwise's update offers a thorough rebuttal of these arguments, providing comprehensive academic references that show that the BTC futures market pricing correlates extremely closely to the spot market.

In order to address all of the Commission’s critical questions regarding the mixed academic record, the Sponsor reviewed all eleven disapproval orders referenced above and summarized the critical questions the Commission has raised regarding the mixed academic record across these orders, as follows.

This takes the SEC's major reason for denying spot BTC ETF applications off the table.

Your move, SEC

The SEC has shown itself to be endlessly, and shamelessly, creative in finding reasons to deny a Bitcoin spot ETF (as well as reasons to take enforcement action against crypto and DeFi companies).

Bitwise's update shows that crypto organizations have become wise to their tactics, and are seeking to head the SEC off before they make their next decision (due on October 16).

The SEC will now need to find another pretext for delaying further. It's likely that they will do just that, but the number of valid reasons—that is, the number of reasons that will stand up in court, which is where this will inevitably end—is shrinking.

Subscribe to our newsletter and follow us on Twitter.