Bloomberg Intelligence, a leading provider of research and analysis on financial markets, has published a report that suggests a spot Bitcoin exchange-traded fund (ETF) could be approved by the US Securities and Exchange Commission (SEC) soon. A spot Bitcoin ETF would allow investors to directly buy and sell the cryptocurrency through a regulated platform, unlike the existing Bitcoin futures ETFs that track the price of Bitcoin contracts traded on derivatives exchanges.
According to Bloomberg Intelligence, the SEC is likely to approve a spot Bitcoin ETF proposal filed by Valkyrie Investments, which has a deadline of Nov. 14. The report cites several factors that could favor Valkyrie’s application, such as its use of Coinbase Custody as the custodian of the Bitcoin assets, its compliance with the SEC’s requirements for liquidity and diversification, and its relatively low expense ratio of 0.5%.
The report also notes that the SEC has recently signaled a more open stance towards cryptocurrency regulation, as evidenced by its approval of the first Bitcoin futures ETFs in October, its appointment of a new director of the Division of Investment Management who has experience in crypto-related matters, and its engagement with industry stakeholders and experts on various crypto topics.
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If approved, a spot Bitcoin ETF would be a major milestone for the crypto industry, as it would provide a more convenient and accessible way for investors to gain exposure to Bitcoin without having to deal with the technical and security challenges of buying and storing the digital asset directly. It would also likely boost the demand and price of Bitcoin, as well as increase its legitimacy and adoption among mainstream investors and institutions.
The case involved Grayscale’s Bitcoin Trust (GBTC), a publicly traded fund that holds bitcoin and allows investors to gain exposure to the cryptocurrency without owning it directly. The SEC had accused Grayscale of violating securities laws by failing to register GBTC as an exchange-traded fund (ETF) and by charging excessive fees to investors.
However, on August 30, 2023, a federal judge ruled in favor of Grayscale, finding that GBTC was not an ETF and that the SEC had no authority to regulate it as such. The judge also dismissed the SEC’s claims that Grayscale had misled investors or engaged in unfair practices.
The ruling was a huge relief for Grayscale and its investors, who had faced uncertainty and volatility in the GBTC market for months. The SEC’s lawsuit had caused a significant discount in GBTC’s share price compared to the underlying value of its bitcoin holdings, leading to massive losses for some investors and arbitrage opportunities for others.
The judge’s decision also triggered a massive liquidation of short positions on GBTC, as traders who had bet against the fund were forced to cover their losses. According to data from Bybt, more than $80 million worth of GBTC shorts were liquidated in the 24 hours following the ruling, resulting in a sharp increase in GBTC’s share price and premium.
The victory for Grayscale is also seen as a positive sign for the crypto industry as a whole, as it shows that the SEC’s attempts to crack down on crypto-related products may not hold up in court. The ruling could also pave the way for more innovation and adoption of crypto ETFs in the U.S., as other fund managers may follow Grayscale’s example and challenge the SEC’s authority.
