Diving into the saga of the Bitcoin (BTC) spot ETF.
Past Events - Recent Developments - What the Future Holds
Past:
1. Grayscale has made numerous attempts to convert its GBTC into a real spot ETF, but the SEC has consistently declined.
- Due to GBTC's non-redeemable nature, its price has always seen a deviation from BTC. Currently, the deviation stands at -13%, marking a 2-year high.
- The peak divergence was +40% (during the bull market zenith) and had slumped to -45% at its worst (during the industry's nadir).
- Conversely, if it were converted into an ETF, its price would strictly mirror BTC's market value, allowing for smooth redemptions and rebalancing.
2. The SEC has repeatedly rejected Grayscale's and other firms' BTC spot ETF applications.
- The SEC typically cites concerns of BTC and exchange manipulations, among other vague reasons.
- However, the SEC did approve several BTC futures ETFs, such as BITO.
- Meanwhile, other countries, like Canada, have approved numerous BTC spot ETFs.
- Hence, a US BTC spot ETF remains conspicuously absent.
Recent:
3. Frustrated, Grayscale took the SEC to court, questioning their bias in approving only futures ETFs and not spot ETFs.
- Result: The SEC lost the case.
- The appeal period has just ended.
- The decision was made by the District of Columbia Circuit Court of Appeals, typically seen as second only to the US Supreme Court.
4. What really distinguishes a spot ETF from a futures ETF?
- In terms of price volatility, they are very similar, accurately reflecting BTC prices and offering investors BTC exposure.
- Product-wise, futures ETFs generally carry higher fees due to the complexities involved in futures transactions.
- Psychologically, institutions might perceive owning a spot ETF as genuinely holding BTC, albeit in the custody of the ETF manager. Conversely, owning a futures ETF may seem more speculative. After all, who would perpetually invest in BTC futures contracts when they can invest directly in BTC?
- Grayscale believes that once the SEC approved the futures ETFs, the "prone to manipulation" excuse no longer stands.
5. Grayscale recently resubmitted files, aiming to convert its GBTC into a genuine ETF.
- While other applicants, like the much-talked-about BlackRock, are launching entirely new BTC ETFs, Grayscale is looking to convert its existing product.
- Grayscale has opted for the S-3 form instead of the more common S-1, asserting that its product is already well-established. https://twitter.com/Grayscale/status/1714988927654994140
Future:
6. The SEC's legal defeat means they must provide explicit reasons, but it doesn't guarantee a BTC spot ETF approval.
- Given that they've already approved futures ETFs, crafting a rejection reason might prove challenging.
- If no solid reason is presented, the SEC might succumb to pressure and approve a BTC spot ETF. Of course, they can also continue to staunchly reject.
- Timeline? Still uncertain.
- Will they approve Grayscale's proposal? The rising negative premium of GBTC suggests a moderate probability.
- BlackRock's approval chances? Considering BlackRock's past approval rates, this probability seems higher.
7. What would the market's reaction be if a BTC spot ETF gets approved?
- A previous misreport by CT led to a 10% surge in BTC. Genuine news could amplify this impact.
- It would offer traditional investors a simplified route to invest in BTC, without the need for crypto exchanges or BTC wallets.
For the crypto industry, there's no pressing need for traditional money to pour in aggressively or "rush to join." Even if these funds make a mere 1% "defensive allocation," it would still signify a robust positive influx for the BTC market.
Therefore, everyone is eagerly waiting for that moment.
Author:
@0xTodd | Nothing Research Partner
Nancy Lin | Nothing Research Analyst
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