The Bitcoin price has leapt 11.5% in 24 hours and over 20% for the past week as market confidence grows that a spot Bitcoin ETF will be approved by the SEC before the end of 2023. Bitcoin is currently trading at over $34,000 for the first time since May 2022 and reached as high as $34,600 during the Asian session on Tuesday, October 24.
The recent recovery of market confidence in Bitcoin is based on growing belief that the SEC may approve the first spot Bitcoin ETFs to be listed on U.S. exchanges.
Last week Mike Novogratz, the billionaire founder of the crypto investment and trading firm Galaxy Digital, told the U.S. news network CNBC:
“We think a Bitcoin ETF will be approved this year in 2023. Talking to all the other people, it just feels like the dialogue with the SEC is all heading in the right direction.”
Alongside luminaries of the mainstream investment landscape including BlackRock, Fidelity and Invesco, Galaxy Digital is one of several financial services companies that currently have proposals for spot Bitcoin ETFs being considered by the SEC.
Why might the SEC finally relent and approve spot Bitcoin ETFs?
The regulator has come under new pressure to approve the first spot Bitcoin ETFs listed on U.S. exchanges (there are already a number of ETFs that offer exposure to Bitcoin futures with the first approved in 2021) since it lost its court case with Grayscale – which accused the SEC of unfairly throwing out its own proposed spot Bitcoin ETF.
In early August, the appeals court Grayscale referred the SEC decision to ruled:
“The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP. In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful.”
The appeal rulinh further described the original SEC ruling as “arbitrary and capricious”.
With the 45-day period during which the SEC, or Grayscale, were able to appeal that ruling having recently lapsed, the regulator must now review its original decision. If it chooses to again reject the application, it will have to be confident any new reasoning provided is meaningfully different to that supporting the original ruling and will stand up to any further appeal.
One fly in the ointment for Grayscale could be the fact that its parent company Digital Currency Group (DCG) is being sued by the New York Attorney General Letitia James. James accuses the company, along with its bankrupt lending unit Genesis Digital and the crypto exchange Gemini, of covering up losses of almost $1 billion.
She alleges that the actions of DCG amount to fraud at the expense of hundreds of thousands of retail investors exposed to the Gemini Lend program.
The program promised investors returns of up to 8% for lending out their crypto assets. James accuses Gemini of misrepresenting the level of risk investors were taking on, despite warnings from internal auditors that as much as 60% of loans were made to Alameda Research – the bankrupt sister trading company of the failed FTX exchange.
Bitcoin price surges after SEC lets 45-day deadline to appeal Grayscale court defeat pass
Since last Friday, when the SEC’s window to appeal the appeal passed, the Bitcoin price has been gaining sharply.
Industry figures connected to the seven spot Bitcoin ETFs currently being reviewed by the SEC have also voiced cautious optimism that the SEC has adjusted its stance since its Grayscale court defeat.
Novogratz commented on a perceived change in the SEC’s approach by noting “when you go to the comment period and what they’re asking about, [it] all seems much more specific than general.”
Ark Investment CEO Cathie Wood, whose company has also submitted a spot Bitcoin ETF filing in partnership with 21Shares, also noted a “change in the SEC’s behaviour”, during a separate interview with CNBC.
Fidelity, another of those to have filed applications for spot Bitcoin ETFs also appears to be making progress with its submission in response to dialogue with the SEC. It has provided an updated version of its spot Bitcoin ETF S-1 application, which goes into greater detail on issues the regulator has expressed concerns over.
The updated filing provides more specifics about the fund’s custodial arrangements, mechanics around Bitcoin hard forks, notices about Bitcoin’s energy consumption and several other additional disclosures.
Most sector analysts believe the dialogue between the spot Bitcoin ETF candidates and the SEC still has some way to go and approval this year is far from a done deal at this stage. Much will depend on what the SEC says it now wants to see and how quickly the ETF applicants are able to respond to that.
What impact could spot ETFs have on the Bitcoin price?
Industry experts expect SEC approval for spot Bitcoin ETFs, if it is finally forthcoming, to lead to a big boost for the original cryptocurrency and the wider crypto market. It is presumed a regulated product like an ETF offering exposure to the Bitcoin market will make it more attractive for institutional investors.
CryptoQuant, a leading provider of on-chain and market data analytics for institutional and professional cryptocurrency investors, is particularly bullish – predicting that spot ETF approval by the SEC will see a $155 billion boost to Bitcoin’s total market capitalisation. The data company expects the broader crypto market to grow by $1 trillion in the long run after approval.
If Cryptoquant’s prediction were to be realised, the exchange value of Bitcoin would be expected to rise to between $50,000 and $73,000 – potentially surpassing the record high of $67,566.83 set in November 2021.
How likely is it that the SEC will approve one or more spot Bitcoin ETFs before the end of the year? There are no guarantees but the detail of the disclosures being made by applicants and news the SEC is now engaged in active back-and-forth dialogue are seen as very positive indicators.
If the end of 2023 passes without the announcement of a spot Bitcoin ETF approval, the next big date will be January 10, 2024. That’s the deadline that has been set for the SEC to respond to Arc Investment’s filing.
Most market observers are convinced that if and when the SEC does eventually give its blessing to one applicant, it will approve more – either simultaneously or in quick succession. To proceed otherwise would leave it open to the accusation it is giving a significant commercial advantage to one favoured ETF provider, giving it a big head start on future competitors.
While there has been much talk of Bitcoin’s April 2024 ‘halving’ event spurring a new bull market for the cryptocurrency, SEC approval of spot ETFs would be expected to be far more influential in catalysing new gains for the cryptocurrency.