A Matter Of When Not If For Spot Bitcoin ETF – Grayscale CEO

Key Points

• It’s “a matter of when and not if there is a bitcoin spot ETF,” Grayscale Investment’s CEO said in a recent interview. 
• Grayscale awaits the SEC’s response to its proposal to convert Grayscale Bitcoin Trust into a bitcoin ETF. 
• Despite popular demand, investors may need to wait until 2023 when crypto exchanges regulations. 

A Matter Of When Not If

“It really is, in our opinion, a matter of when and not if there is a (US-based) bitcoin spot ETF,” said Grayscale Investments CEO Michael Sonnenshein in a recent interview with CNBC. 

The US Securities and Exchange Commission (SEC) recently approved a new bitcoin futures ETF, and, unlike previous bitcoin future ETF applications, this latest one was filed under the Securities Act of 1993 as opposed to the Securities Exchange Act of 1940.

As a result, crypto analysts have argued that the way this new ETF is structured opens the door for the approval of spot bitcoin ETFs in the US, an investment product that the crypto community has long been pushing for.

So far, the SEC has rejected all proposals for a spot bitcoin ETF citing concerns about manipulation and fraud, even though they have already secured approval in places like Canada and Brazil.

Grayscale Investment’s CEO Sonnenshein said that “from the SEC’s standpoint, there were several protections that (19)40 Act products have that (19)33 products don’t have, but never ever did those protections address the SEC’s concern over the underlying bitcoin market and the potential for fraud or manipulation.”

“The fact that they’ve now evolved their thinking,” Sonnenshein continued, “and approved a 33 Act product with Teucrium really invalidates that argument and talks to the linkage between the bitcoin futures and the underlying bitcoin spot markets that give the futures contracts their value.”

“If the SEC can’t look at two like issues, the futures ETF and the spot ETF, through the same lens, then it is, in fact, potentially grounds for an Administrative Procedure Act violation,” he concluded.

Grayscale awaits the conclusion of an SEC review of its proposal to convert Grayscale Bitcoin Trust into a bitcoin ETF. They expect to hear back from the SEC in early July. 

The company’s CEO has been a vocal critic of the SEC’s slow and reluctant approach to spot bitcoin ETF approval.

Lack Of Crypto Exchange Regulation A Problem

One crypto analyst writing for CoinDesk last week was not optimistic about the prospect of near-term approval of a bitcoin ETF.

They noted that the SEC has expressed concerns about the unregulated nature of crypto spot exchanges (at the federal level) in the US. Meanwhile, in recent ETF rejections, the SEC has said that the exchanges promoting crypto ETFs haven’t so far argued sufficiently against concerns about manipulation and fraud.

“It seems likely (to me anyway) that the agency will continue to reject spot ETF applications, at least for the foreseeable future,” they wrote.

This take chimes with an argument made recently by analysts at Bloomberg Intelligence. They argued that spot bitcoin ETFs could start getting SEC approval by mid-2023, given a proposed rule change that would bring cryptocurrency exchanges into the regulatory fold.

Investors Clamour For Bitcoin ETF

The SEC’s reluctance to approve a bitcoin ETF is frustrating for many in the investment community.

In a 2022 Bitwise/ETF Trends survey released earlier in the year, 82% of advisors said they’d prefer investing in a spot bitcoin ETF vs. a futures-based bitcoin ETF.

Similarly, a recent Nasdaq survey of 500 financial advisors who had already allocated a portion of client funds found that 72% would be more comfortable investing in crypto if there was a spot ETF. 

Crypto analysts argue that the approval of the first US-based spot bitcoin ETF will be a key milestone towards broader institutional adoption of the asset class.