The US Securities and Exchange Commission (SEC) has postponed its decision on whether to approve a spot Bitcoin exchange-traded fund (ETF) proposed by Franklin Templeton, one of the largest asset managers in the world. The SEC announced on Tuesday that it would extend the review period for the Franklin Bitcoin ETF Trust by another 45 days, pushing the deadline to January 26, 2022.
The Franklin Bitcoin ETF Trust aims to provide exposure to Bitcoin by holding the cryptocurrency in a segregated custodial account and tracking the performance of the Fidelity Bitcoin Index PR. The ETF would trade on the NYSE Arca exchange under the ticker symbol FBTC. Franklin Templeton filed its application for the ETF in September, joining a growing list of firms seeking to launch a spot Bitcoin ETF in the US.
However, the SEC has not approved any spot Bitcoin ETFs yet, despite receiving dozens of applications from various companies. Why is that? The main reason is that the SEC is concerned about the potential for fraud, manipulation, and investor protection issues in the Bitcoin market. The SEC believes that the Bitcoin market is not sufficiently regulated, transparent, or mature to support a spot Bitcoin ETF. The SEC also worries that a spot Bitcoin ETF may expose investors to additional risks, such as hacking, theft, or loss of access to their Bitcoin holdings.
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In contrast, the SEC has recently approved several futures-based Bitcoin ETFs, which track the price of Bitcoin futures contracts rather than the underlying asset. These ETFs have attracted significant interest from investors, with the first one, ProShares Bitcoin Strategy ETF (BITO), reaching over $1 billion in assets under management in less than a week.
The SEC considers futures-based Bitcoin ETFs to be less risky than spot Bitcoin ETFs, because they rely on regulated and transparent futures markets, rather than unregulated and opaque spot markets. Futures-based Bitcoin ETFs also do not require the ETF provider to hold or custody any physical Bitcoin, which reduces the operational and security challenges.
The crypto industry and investors are eagerly awaiting the SEC’s verdict on spot Bitcoin ETFs, as they are seen as a more direct and efficient way to gain exposure to the cryptocurrency than futures-based ETFs. Spot Bitcoin ETFs would also lower the barriers to entry for retail investors, who may not have access to futures markets or may not want to deal with the complexities and risks of futures contracts. Spot Bitcoin ETFs would also create more demand for physical Bitcoin, which could have a positive impact on its price and liquidity.
However, some analysts and experts have cautioned that spot Bitcoin ETFs may not be approved anytime soon, as the SEC may want to see more regulatory clarity and oversight in the Bitcoin market before giving its green light. The SEC may also want to coordinate with other regulators, such as the Commodity Futures Trading Commission (CFTC) and the Financial Industry Regulatory Authority (FINRA), to ensure a consistent and comprehensive regulatory framework for crypto assets.
Additionally, some legal challenges may arise from the classification of Bitcoin as a commodity rather than a security, which could affect the jurisdiction and authority of the SEC over spot Bitcoin ETFs.