Will the SEC Finally Approve a Spot Bitcoin ETF?

The price of Bitcoin today (^BTCUSD) rose more than +4% to a 3-1/4 month high on speculation the U.S. Securities and Exchange Commission (SEC) may be close to approving the first U.S. exchange-traded-funds (ETFs) investing directly into spot Bitcoin.  Asset managers BlackRock and Fidelity Investment are among the fund managers in the race to offer a spot Bitcoin ETF in the U.S., which could spark new inflows into the cryptocurrency.

The SEC has so far resisted approving spot Bitcoin ETFs, citing risks such as fraud and market manipulation.  However, the SEC recently indicated that it won’t appeal an August court ruling that may pave the way for the $18.4 billion Grayscale Bitcoin Trust to convert to an ETF.  Bloomberg Intelligence said, “approval of a spot Bitcoin ETF looks inevitable” and that several funds are likely to be given the green light, although the exact timing remains uncertain.

Bitcoin has rallied +87% this year, easily beating the 44% gain in the MarketVectorTM Digital Assets Index, a market cap-weighted index that tracks the performance of the 100 largest digital assets.  According to CoinGecko, Bitcoin accounts for almost 50% of the $1.2 trillion digital asset market.  Other cryptocurrencies are also moving higher, with Ethereum (^ETHUSD) up more than +4% today at a 3-week high. The “Crypto is Now” newsletter said, “As Bitcoin moves gather steam, traders are concerned the rest of the cryptocurrency market might follow,” so traders are moving to covered short positions.

In addition to worries about liquidity and market manipulation, the SEC has expressed concern that Bitcoin’s volatility might be too much for ordinary investors. Bitcoin’s last three full-year returns were gains of +305% in 2020, up another +60% in 2021, followed by a loss of -64% in 2022.  The SEC has also questioned whether funds would have the information necessary to adequately value tokens like Bitcoin, including whether they can validate who owns the underlying coins.  SEC Chairman Gensler has said that the lack of regulatory oversight and surveillance in crypto markets has led to “concerns about the potential for fraud and manipulation.” 

Long-term market investor confidence in Bitcoin appears to have improved recently.  Data from intoTheBock shows a sizable increase in long-term Bitcoin holdings, as 80% of circulating Bitcoin has not been moved from investor digital wallets in the last six months.  The continuous accumulation of Bitcoin is a positive factor behind the recent strength in cryptocurrency despite a series of turbulent market events.

Some experts expect SEC approval of at least one spot Bitcoin ETF by the end of the year. However, uncertainty remains as there have been nearly 30 prior attempts by asset managers that failed to persuade the SEC to give them a chance to start a Bitcoin ETF.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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