According to agency filings on Thursday, the U.S. Securities and Exchange Commission (SEC) has postponed making a decision on all spot bitcoin exchange-traded fund (ETF) applications until October. The applicants include BlackRock, WisdomTree, Invesco Galaxy, Wise Origin, VanEck, Bitwise, and Valkyrie Digital Assets.
Bitcoin (BTC), which had already dropped significantly for the day, lost even more ground after the announcement, falling 4.1% to $26,100 as of this writing.
Launching Bitcoin ETF
The SEC started analysing the most recent batch of applications last month from traditional and crypto-focused financial institutions like Wise Origin (Fidelity), BlackRock, and Invesco Galaxy. In order to increase retail involvement in the bitcoin market and save investors the hassle of setting up a wallet or needing to acquire bitcoin directly, the applicants seek to create the first bitcoin ETF.
Decision holds off
With today’s directives, the SEC is delaying making a final judgement in favour of extending the current comment periods and allowing for further public input on the applications. The revised submission deadlines for Wise Origin, Galaxy, and WisdomTree are set for October 17, and Valkyrie’s is two days later. Bitwise now has a deadline of October 16.
The agency has 240 days to decide whether to approve or reject an application when it first starts reviewing it. The agency filings on Thursday were anticipated since SEC staff has historically used every comment and review period to postpone making final determinations until that 240 days had passed.
Rejection from few regulators
Grayscale argued that the SEC lacked a solid reason to reject its application to convert the Grayscale Bitcoin Trust into an ETF, and earlier this week the D.C. Circuit Court of Appeals ruled that some of the regulator’s arguments in rejecting bitcoin ETF applications seemed “arbitrary and capricious.” Digital Currency Group is the parent firm of both Grayscale and CoinDesk.
Perspective of an expert
The SEC’s denial of the application, according to Judge Neomi Rao, was inconsistent with the approval of two bitcoin futures ETFs, and the SEC failed to explain why it viewed these kinds of products differently given that the underlying bitcoin market had a “99.9% correlation” between spot and futures market prices. The court ruled unanimously in this regard. The winning defense put out by Grayscale was that their proposed ETF was “materially similar” to the futures ETFs.
“First, bitcoin and bitcoin futures are highly connected underlying assets. Furthermore, because the surveillance sharing arrangements with the CME are equivalent, there should be an equal chance of spotting fraudulent or manipulative activity in the market for bitcoin and bitcoin futures, the expert added.
Judgment
Similar justifications to those used by the SEC to deny previous ETF applications were also used to deny Grayscale’s proposal. The appeals court mandated that the regulator reexamine the application.
Bottom Line
Bitcoin’s price has fallen as a result of the U.S. Securities and Exchange Commission (SEC) delaying its judgement on applications for spot bitcoin exchange-traded funds (ETFs). The SEC has recently taken cautious steps, such as extending comment periods, but a recent court decision has forced the commission to reevaluate its position on Bitcoin ETFs, perhaps opening the door for future approvals. The new October deadlines will be eagerly watched by the financial and crypto industries.