Author: BlockingBitpushNews Mary Liu
For years, the spot Bitcoin ETF has become the “holy grail” of the cryptocurrency industry.
An ETF is a publicly traded investment tool that tracks the value of the underlying asset; in the case of a Bitcoin ETF, that asset is Bitcoin. Proponents of a Bitcoin ETF believe that the complexity of exchanges, crypto wallets, and private keys still poses a significant barrier to entry for newcomers to the crypto field, and a Bitcoin ETF would allow ordinary users to invest in Bitcoin without actually holding their own cryptocurrency.
Bitcoin ETFs have sprung up like mushrooms all over the world, including in Canada, Brazil, and Dubai. In October 2021, ProShares’ Bitcoin Futures ETF debuted on the New York Stock Exchange. However, the U.S. Securities and Exchange Commission (SEC) has so far rejected all applications for spot Bitcoin ETFs. Spot ETFs offer a direct opportunity to invest in Bitcoin, rather than futures contracts. The SEC has repeatedly pointed out that cryptocurrency traders may engage in market manipulation.
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However, spurred on by asset management giant BlackRock, several financial firms have joined the new race for spot ETF applications. Here are the currently queued spot Bitcoin ETFs awaiting approval (as of June 29, 2023, according to public data):
1. Ark Invest
Investment firm Ark Invest, led by “Wood Sister” Cathie Wood, submitted an application for the Ark 21Shares ETF in June 2021. ARK Invest is partnering with Swiss ETF provider 21Shares AG to launch the ARK 21Shares Bitcoin ETF; if approved, it will trade on Cboe’s BZX exchange under the ticker symbol ARKB.
The company was also the first to disclose the fees for its Bitcoin ETF, with documents showing plans to pay 0.95% to 21Shares, which will use the money to cover operating costs.
Ark Invest has invested in cryptocurrency exchange Coinbase, Grayscale Bitcoin Trust, and payment processor Square, which holds over 8,000 bitcoins on its balance sheet. Cathie Wood is a vocal advocate for Bitcoin, believing that cryptocurrencies represent “a new asset class” and can serve as a reserve currency.
Ark Invest’s ETF was rejected in early 2022. The company immediately reapplied and was rejected again in January 2023. Ark Invest is currently in the process of a third application.
2. BlackRock
On June 15th, the world’s largest asset management company BlackRock (which manages assets totaling over $9 trillion as of Q1 2023) submitted an application for a Bitcoin spot ETF, shocking both TradFi and the crypto industry. The filing proposes Coinbase as the cryptocurrency custodian and spot market data provider, and BNY Mellon as the cash custodian.
Bloomberg Senior ETF Analyst Eric Balchunas said that the investment product is technically a trust, but functionally is a “real trading” spot market ETF. Balchunas said BlackRock has had disputes with the U.S. Securities and Exchange Commission (SEC) several times over launching ETFs, but its success rate is 575:1.
BlackRock’s ETF application was endorsed by former Barclays CEO Bob Diamond, and it has led WisdomTree, Invesco, and Valkyrie to file new applications with the SEC, while also helping the bitcoin price return to over $30,000 in June 2023.
3. Bitwise
Bitwise Asset Management submitted a new application to the U.S. SEC on June 16 to modify the rules to accommodate its planned Bitwise Bitcoin ETP Trust.
The SEC rejected Bitwise’s application for a Bitcoin spot ETF in June 2022, citing the ETF’s inability to achieve sufficient surveillance sharing, provide protection against market manipulation, and demonstrate the significant size of the relevant market.
In April of this year, Bitwise CIO Matt Hougan said that while a spot bitcoin ETF is “great for investors in the long run,” Bitwise may wait until regulations are more clear before launching another ETF.
In the new filing, BitWise states that the SEC should initiate additional proceedings to approve, disapprove, or initiate proceedings concerning its proposed rule change within 45-90 days. The application is said to be released by the New York Stock Exchange (NYSE), but has not yet been processed by the U.S. SEC, meaning the actual deadline for the application is currently unclear.
4. Invesco Galaxy Bitcoin ETF
Galaxy Digital and Invesco jointly filed a bitcoin ETF on September 22, 2021, called the Invesco Galaxy Bitcoin ETF. According to the filing, the ETF will also be backed by bitcoin “physically,” rather than through derivatives such as futures. Invesco Capital Management LLC is the initiator of the application, but it is currently unclear which company will custody the bitcoin for the application.
The sponsor is a wholly owned subsidiary of Invesco Ltd, which is also the fourth largest ETF provider in the United States, a qualification that may help with the application. John Hoffman, head of ETF strategy at Invesco US, said: “This is very similar to the early days of ETFs (late 1990s, early 2000s) for those of us who have been in the ETF business for a long time.”
This product is the first of a series of crypto ETFs that the two companies hope to list on the US market.
5. WisdomTree
New York-based asset management firm WisdomTree already has experience operating a bitcoin ETF; it launched a bitcoin ETF on SIX Exchange in Switzerland in 2019. It joined the candidates for a US bitcoin ETF in March 2021, submitting an S-1 filing to the SEC proposing the listing of the WisdomTree Bitcoin Trust on the Cboe bZx Exchange with the ticker code BTCW.
Since then, the SEC has repeatedly delayed, first soliciting public feedback on the proposal, then announcing that it needed more time to consider the “issues” raised in the comment letter.
The SEC rejected WisdomTree’s application at the end of 2021, around the same time it rejected similar applications from Valkyrie and Kryptoin. Shortly after BlackRock filed its application, WisdomTree submitted a new application in mid-2023.
6. Valkyrie Investments
As a newer entrant, asset management firm Valkyrie submitted its first bitcoin ETF application in January 2021. The ETF will reference the bitcoin reference price of the Chicago Mercantile Exchange (CME) and trade on the New York Stock Exchange Arca, the company wrote in the proposal, “providing investors with an effective means of implementing a variety of investment strategies,” with crypto custodian Xapo responsible for custodying and cold storing the fund’s bitcoin.
In the filing, Valkyrie mentioned the volatility of cryptocurrencies – a major concern of the SEC regarding bitcoin ETFs. In its risk assessment, it stated, “The potential consequences of a failure of the bitcoin exchange could adversely affect the value of the stock.”
As expected, the SEC has delayed its decision on Valkyrie’s application, as well as those of Kryptoin, WisdomTree, and Global X, ultimately rejecting Valkyrie and Kryptoin’s applications around Christmas 2021.
In early 2022, Valkyrie’s Bitcoin mining ETF was successfully approved by the SEC. The tool is supported by holdings of companies that use an average of 77% renewable energy, including heavyweight industry players such as Argo Blockchain, Bitfarms, Cleanspark, Hive Blockchain, and Stronghold Digital Mining.
In June 2023, Valkyrie submitted another application for a Bitcoin spot ETF to the SEC.
7. Fidelity
Fidelity, the financial services giant that manages around $11 trillion in assets, filed an application on June 29th for an ETF that was registered under the name Wise Origin Bitcoin Trust. According to the filing, Fidelity Digital Asset Services will be “responsible for custody of the bitcoin held by the Trust.”
Unlike BlackRock, Fidelity previously attempted to launch a Bitcoin spot ETF. The company submitted a Wise Origin Bitcoin Trust application in 2021, which was ultimately rejected by the SEC in January 2022. This rejection came two months after Fidelity successfully launched a spot Bitcoin ETF in Canada.
Fidelity entered the crypto space years ago, launching Fidelity Digital Assets in 2018 to provide cryptocurrency custody and trade execution services to institutional investors such as hedge funds, family offices, and market intermediaries. It also launched the Fidelity Digital Industry and Payment ETF (FDIG) and the Fidelity Metaverse ETF (FMET) in April 2022.
Failure Cases
There have been many failures of spot Bitcoin ETF applications; so far, the SEC has denied all related applications. The following are all the applications that have been rejected to date:
1. Global X
Global X Digital Assets is a fund management company that manages $31 billion in assets and submitted an application to the SEC in July 2021. The proposed Global X Bitcoin Trust would trade on the Cboe BZX exchange.
The proposed trust does not disclose the identity of the custodian responsible for safeguarding the Bitcoin, only stating that it is a limited purpose trust company authorized to provide digital asset custody services in the state of New York.
In September 2021, GlobalX Bitcoin Trust was one of four Bitcoin ETF applications (including one Bitcoin futures ETF application) whose deadline was postponed by the SEC. The deadline was extended to November 21, 2021. In March 2021, the proposal was rejected by the SEC and NYDIG.
2. Kryptoin
Kryptoin, headquartered in Delaware, first attempted to apply for a Bitcoin ETF in October 2019, intending to list the Kryptoin Bitcoin ETF Trust on NYSE Arca. In April 2021, the financial services company made a second attempt to launch a Bitcoin ETF, with the modified proposal listing service providers to assist in the ETF’s launch, including cryptocurrency exchange Gemini, which will provide custody services for the Bitcoin held by the trust. At the end of that month, the application was officially under review by the SEC, which subsequently postponed its decision on the application to July 27, 2021.
In September 2021, the SEC again postponed the final deadline for a decision on the Kryptoin Bitcoin ETF Trust to December 24, 2021, emphasizing the need for more time to “consider proposed” rule changes and the issues raised in comments from the public. The SEC rejected the applications from Kryptoin and Valkyrie at the end of 2021.
3. Fidelity/Wise Origin
In March 2021, Bitcoin ETF applications surged, including Fidelity’s Wise Origin Bitcoin Trust, which was not surprising given that just a few weeks earlier, Fidelity’s global macro director Jurrien Timmer had said that Bitcoin had “unique advantages” over gold. The Wise Origin Bitcoin Trust application will be managed by Fidelity Service Company Inc, with Fidelity Digital Assets custodying the Bitcoin underlying the ETF.
In May 2021, Cboe Global Markets submitted a proposal listing Fidelity’s Bitcoin ETF, stating that SEC concerns about market manipulation had “been sufficiently alleviated” due to increased investor participation and institutional adoption of cryptocurrencies, which “promotes the maturation of the Bitcoin trading ecosystem”. In the same month, the U.S. Securities and Exchange Commission began reviewing Fidelity’s application.
In January 2022, a Fidelity ETF was rejected. First Trust/SkyBridge were also rejected. In March 2021, hedge fund SkyBridge Capital submitted a Bitcoin ETF application to the SEC. The company, run by former White House Communications Director Anthony Scaramucci, already operates a Bitcoin fund open to accredited investors with a minimum investment of $50,000. Its sales grew to over $370 million within weeks of opening in January 2021. That month, Scaramucci expressed optimism that a Bitcoin ETF could be approved by the end of 2021, saying, “I’m hopeful that with Gary Gensler coming in now to the regulatory rule, and my understanding of his background, we might be able to launch an ETF by the end of this year.” In May 2021, NYSE Arca submitted a proposed rule change application for the SkyBridge Capital Bitcoin ETF to list on the exchange. In July of the same year, the SEC delayed its review period for the SkyBridge Bitcoin ETF, which was ultimately rejected in January 2022. New York Digital Investment Group and consulting firm Stone Ridge quickly seized the opportunity brought by changes in the SEC’s leadership to become the second potential ETF to submit an application to regulators in 2021. The application was submitted on February 16th and Bitcoin broke through $50,000 for the first time. In March 2022, the SEC rejected the NYDIG and Global X application. One River Asset Management launched a bid for a Bitcoin ETF in May 2021 and applied for a carbon-neutral Bitcoin exchange-traded fund. With Bitcoin’s energy consumption and carbon footprint coming under increasing scrutiny, One River promised to “purchase and retire the necessary carbon credits to offset estimated carbon emissions associated with the Bitcoin held by the trust” through the environmental platform Moss Earth to offset its carbon footprint. To win the support of the US Securities and Exchange Commission, One River dropped a bombshell, hiring former SEC Chairman Jay Clayton as an advisor. Its application was rejected in May 2022.
7. Galaxy Digital
In April 2021, cryptocurrency investment firm Galaxy Digital applied for a bitcoin ETF; at the time, the eighth such application had been submitted to the SEC. The proposed Galaxy Bitcoin ETF would be listed on the NYSE Arca. Galaxy Digital manages over $2.5 billion in assets and is also one of the largest institutional holders of bitcoin, with a stash of 16,400 bitcoins (worth nearly $500 million at current prices).
Billionaire Galaxy Digital founder Mike Novogratz weighed in on the issue of the SEC’s reluctance to approve bitcoin ETFs at the 2021 Ethereal Summit, saying that the SEC allowed the Grayscale Bitcoin Trust (GBTC) to thrive instead under the leadership of the Trump administration, which was “not so good” for consumers. Novogratz believes that GBTC allows consumers to “buy bitcoin at a premium of 20-30% and be arbed into a closed-end fund by hedge funds, and an ETF would be a more elegant solution.”
Like all other ETF proposals, Galaxy Digital’s standalone application yielded no results, but the company later applied for a joint ETF with Invesco in September 2021, as mentioned above, after BlackRock submitted its application.
8. Grayscale
Cryptocurrency investment fund manager Grayscale’s GBTC Bitcoin Trust manages over 600,000 BTC (worth nearly $20 billion at today’s prices), and in October 2021, it began formally submitting applications to convert to a spot ETF.
If approved, Grayscale will be able to charge lower management fees and funds will be easier to enter and exit. Grayscale first submitted an application to launch a bitcoin ETF in 2016 but withdrew it a year later, saying, “We believe the regulatory environment for digital assets has not evolved to the point where such a product can successfully be brought to market.”
The lack of a mature bitcoin ETF has posed problems for Grayscale and the wider bitcoin market. GBTC has replaced such products, meeting the bulk of US institutions’ demand for bitcoin. However, its shares occasionally trade at a negative premium, below the value of each share’s underlying bitcoin, but the fund does not allow shares to be redeemed for bitcoin itself, so the market cannot organically solve this problem. If a bitcoin ETF is approved, investors will be able to redeem shares at any time. This could prevent negative premiums from occurring and help keep shares in line with the value of the underlying token.
Grayscale has been laying the groundwork for a Bitcoin ETF, hiring ETF experts and signing an agreement with Bank of New York Mellon, which will serve as the service provider for GBTC. If converted to an ETF, Bank of New York Mellon will provide transfer agency and ETF services.
In June 2022, the SEC rejected Grayscale’s application, stating that the company had not done enough to prevent potential fraud. Grayscale immediately filed a lawsuit with regulators, calling their rejection “illogical.”
9. VanEck
VanEck is one of the earliest applicants for a Bitcoin ETF. As early as 2018, it attempted to launch a Bitcoin ETF in partnership with SolidX – the VanEck SolidX Bitcoin Trust Fund.
Although the application was withdrawn in September 2019, VanEck again attempted to launch a Bitcoin ETF, submitting its VanEck Bitcoin Trust application to the SEC in December 2020, with the trust’s shares to be traded on Cboe BZX.
It is worth noting that VanEck submitted its second application just days after former SEC Chairman Jay Clayton resigned. In a 2019 interview with CNBC, Clayton scorned the prospects of a Bitcoin ETF, noting that while “progress has been made” on custody concerns, cryptocurrencies are still susceptible to price manipulation and overseas exchanges “do not provide the same level of protection as the U.S. stock market.”
The SEC has repeatedly delayed its decision on VanEck’s second Bitcoin ETF application, rejecting it in November 2021. The company subsequently made a third application in mid-2022, but the SEC once again stalled, ultimately rejecting it in March 2023.
A long and winding road
The road to a Bitcoin ETF has been a long one. Since the Winklevoss brothers first applied for a Bitcoin ETF-like trust in 2013, the U.S. Securities and Exchange Commission (SEC) has been dragging its feet on the idea. In recent years, it has repeatedly delayed decisions on multiple Bitcoin ETFs, causing companies like VanEck to withdraw their applications out of concern that the SEC would reject them.
The SEC’s primary concerns about approving a Bitcoin ETF involve a lack of transparency in trade information, market manipulation, and Bitcoin’s different properties from other financial assets (such as what would happen in the event of a hard fork), as well as concerns about a lack of liquidity in the market.
Sui Chung, CEO of cryptocurrency index provider CF Benchmarks, told Decrypt in an interview that early applicants for a Bitcoin ETF, such as the Winklevoss brothers, were all from start-ups, albeit well-funded ones. But now, these applications are coming from a new generation of applicants who are ready to tackle these challenges.
“I think the SEC has expressed concerns in many areas before, that applicants have no rich experience in the ETF market, especially in the ever-changing crypto market and how they synchronize with the stock market through ETF structures,” he added. He also said that if constructed properly, a Bitcoin ETF is no different from any other ETF listed on a stock exchange.
In August 2021, SEC Chairman Gary Gensler said at a hearing that he was “particularly interested” in the SEC’s review of a “Bitcoin futures ETF limited to trading on the CME,” hinting that the SEC was more inclined towards Bitcoin futures ETFs. Physical Bitcoin ETFs have sparked a wave of applications for Bitcoin futures ETFs, with companies such as Galaxy Digital and VanEck submitting applications.
Gensler reiterated his interest in Bitcoin futures ETFs in a speech he prepared for the Financial Times’ “Future of North America Asset Management” conference in September 2021. Gensler said that earlier this year, “some open-end mutual funds launched investments in Bitcoin futures traded on the Chicago Mercantile Exchange (CME).”
The SEC chairman noted that regulators have received many filings for Bitcoin futures ETFs under the 1940 Investment Company Act, also known as the “40 Act.” “In conjunction with other federal securities laws, the ’40 Act provides important investor protections for mutual funds and ETFs,” Gensler said. “I look forward to staff’s review of these filings.”
In October 2021, the long wait finally came to an end, and the first Bitcoin futures ETF started trading on the New York Stock Exchange. The ProShares BTC Futures ETF nearly broke all records for first-time ETF debuts, with nearly $1 billion in trading volume on its first day.
Global Bitcoin ETFs
While the US has been slow to act, other countries have been forging ahead. There are now multiple Bitcoin ETFs operating in countries such as Canada and Brazil. Europe has many exchange-traded notes (ETNs), which are very similar financial instruments.
Despite multiple rejections and delays, the cryptocurrency industry remains optimistic, and BlackRock’s application in June 2023 rekindled hope. After BlackRock submitted its application, Eric Balchunas, senior ETF analyst at Bloomberg, stated that BlackRock’s move “undoubtedly injected new vitality and optimism into the entire Bitcoin ETF race.”
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