A Spot Bitcoin ETF Still Seems Unlikely

ETF proponents hope the approval of a recent bitcoin futures ETF portends the approval of a spot ETF. The SEC still has concerns.

AccessTimeIconApr 12, 2022 at 5:47 p.m. UTC
Updated May 11, 2023 at 3:42 p.m. UTC
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Several bitcoin futures exchange-traded funds are now trading in the U.S., with more to come, but a spot bitcoin ETF remains elusive. Industry proponents hope that the recent approval of a futures ETF filed under the same law that governs spot bitcoin ETF applications is a good sign, but the U.S. Securities and Exchange Commission has a laundry list of concerns that still need to be addressed.

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When will a spot ETF be approved? (Redux)

The narrative

Another bitcoin futures exchange-traded fund (ETF) was approved for the U.S. market last week. And unlike the case for the others, the way it’s structured opens the door for a spot bitcoin ETF, something the industry has long clamored for. Recent spot bitcoin ETF rejections, however, suggest it may not be that simple.

Why it matters

A spot bitcoin ETF would trade based on the price of bitcoin, as opposed to futures ETFs, which trade based on the price of bitcoin futures. Bitcoin futures are a smaller market than spot bitcoin and aren’t directly correlated to the price of bitcoin (since again, they are futures). Crypto industry proponents have been calling for a spot ETF as a safe way for traders to enter the bitcoin market without directly investing in the cryptocurrency itself.

Breaking it down

The SEC approved a bitcoin futures ETF last week. Unlike previous futures ETF applications, this one was filed under the “33 Act” (or the Securities Act of 1933) and the “34 Act” (or the Securities Exchange Act of 1934). All of the past bitcoin futures ETFs were filed under “40 Act” (the Investment Company Act of 1940).

I asked last year whether 2021 would be the year of the bitcoin ETF and concluded – in February – that the answer was basically 🤷. The question now is whether 2022 will be the year of the spot bitcoin ETF, and the answer seems to be more 🙅 than 🤷.

SEC Chairman Gary Gensler said last year he felt more comfortable with 40 Act funds because of the investor protections enshrined within the law, as well as the market surveillance tools overseeing the futures market. The bulk of the volume is on Chicago Mercantile Exchange, a traditional firm with long-standing surveillance tools in place.

The SEC’s recent rejection orders seem to echo this premise.

“The Commission concludes that BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and in particular, the requirement that the rules of a national securities exchange be ‘designed to prevent fraudulent and manipulative acts and practices’ and ‘to protect investors and the public interest,’” SEC staffers wrote in rejecting the ARK21Shares Bitcoin ETF.

The SEC used identical language a month earlier in rejecting the NYDIG Bitcoin ETF.

But people want a bitcoin ETF. A Nasdaq survey of 500 financial advisers found that 72% would be more comfortable investing in crypto if there was also a spot ETF.

An important caveat here is this survey was of financial advisers who are already considering allocating funds to crypto, and so the respondents weren’t necessarily representative of financial advisers at large in the U.S.

Let’s back up. The reason I’m talking about this today is that the SEC approved Teucrium’s bitcoin futures ETF to begin trading last week. Unlike ProShares, Valkyrie or VanEck, Teucrium filed for a 33 Act fund. The approval jump-started fresh speculation that a spot bitcoin ETF may be closer to approval.

At the very least, the 33 Act approval would seem to serve as evidence should a company such as CoinDesk sister firm Grayscale decide to file a legal challenge of some sort to a future SEC rejection.

Grayscale has already argued that the previous futures ETF approvals create ground for the approval of a spot ETF (Grayscale filed to convert its Grayscale Bitcoin Trust to an ETF).

The bitcoin derivatives markets have identical exposure to fraud and manipulation that the spot markets might have, Grayscale’s attorneys wrote in a letter to the regulator last year.

“It is of course foundational that the Commission – like any other federal regulatory agency – must treat like situations alike absent reasoned justification,” the letter said.

The SEC took aim at that argument in its Teucrium approval order, with staffers writing that they accepted NYSE Arca’s argument that for anyone to manipulate bitcoin futures ETF prices, they would have to manipulate CME’s bitcoin futures market directly, and not just the bitcoin spot market.

“The Commission has considered and rejected nearly identical arguments in past disapproval orders of spot bitcoin ETPs. Moreover, the Commission finds arguments centered around the relationship between the bitcoin spot market and the CME bitcoin futures market to be inapposite where, as here, the proposed ‘significant’ market (i.e., the CME bitcoin futures market) is the same as the market on which the proposed ETP’s only non-cash assets (i.e., CME bitcoin futures contracts) trade,” the SEC wrote.

In its recent rejections, the SEC wrote that the stock exchanges sponsoring spot crypto ETFs have “not sufficiently” argued against the agency’s concerns about manipulation and fraud.

“Such possible sources have included (1) ‘wash’ trading, (2) persons with a dominant position in bitcoin manipulating bitcoin pricing, (3) hacking of the bitcoin network and trading platforms, (4) malicious control of the bitcoin network, (5) trading based on material, non-public information, including the dissemination of false and misleading information, (6) manipulative activity involving the purported ‘stablecoin’ Tether (USDT), and (7) fraud and manipulation at bitcoin trading platforms,” the SEC wrote.

The agency has also said it’s concerned that the crypto spot exchanges are themselves unregulated (left unsaid is that they are unregulated at the federal level, not the state level as every U.S. crypto exchange is supposed to be).

Given that the SEC has consistently expressed concerns about market manipulation in rejecting spot bitcoin ETF applications, it seems likely (to me anyway) that the agency will continue to reject spot ETF applications, at least for the foreseeable future.

Biden’s rule

Changing of the guard

Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)
Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)

U.S. President Joe Biden has nominated Jaime Lizárraga and Mark Uyeda to fill two seats on the SEC. Lizárraga is now a senior adviser to House Speaker Nancy Pelosi (D-Calif.), while Uyeda is an SEC attorney working with the Senate Banking Committee minority staff as securities counsel, according to a White House press release.

Elsewhere, Politico’s Victoria Guida reports that Michael Barr, a former Treasury Department official, former Ripple board member and current dean at the University of Michigan is under consideration to be the Federal Reserve's vice chairman for supervision, the role Sarah Bloom Raskin was previously nominated for. Barr was also under consideration for comptroller of the currency last year but received pushback.


  • Crypto Rules Should Match Traditional Financial System, Yellen to Say Thursday: Treasury Secretary Janet Yellen gave a speech on the crypto industry and how it may be regulated, calling for “tech neutral” rules.
  • France's Presidential Candidates Ignore Crypto Issues: A few weeks ago, we published an article on how South Korea’s presidential candidates were pitching to crypto voters in the country. Half a world away, crypto is barely on the radar in France’s election, which saw incumbent Emmanuel Macron and challenger Marine Le Pen advance to a runoff.
  • Top US Lawmaker Proposes Sweeping Stablecoin Regulation Framework: Sen. Pat Toomey (R-Pa.), the ranking member on the Senate Banking Committee, circulated a discussion draft bill that would create a three-pronged approach for stablecoin regulation. As outlined, the bill would give stablecoin issuers the option of operating under a new license issued by the Office of the Comptroller of the Currency, operating as a traditional bank or operating as a state money transmitter business, with strict disclosure and redemption rules in place.
  • Can India’s Controversial New Tax Law Be Challenged in Court? Yes, Say Crypto Lawyers: India’s 30% tax on crypto profits took effect on April 1. Several attorneys don’t believe this part of India’s strict crypto tax law can be challenged. The 1% tax deducted at source, however, may be another matter.
  • New York Senate Authorizes NYDFS to 'Assess' Crypto Companies: The New York Senate has authorized the state Department of Financial Services to develop an “assessment,” or charge for the crypto companies it oversees to help offset some of the costs of this oversight. “The ability for DFS to charge fees is in line with standard practice in the banking and insurance sectors. With increased funding, DFS will have the capacity to hire additional staff with a background and expertise in crypto, allowing DFS to evolve alongside the industry and support New York's position as the center of financial innovation,” the Global Blockchain Business Council told CoinDesk’s Cheyenne Ligon.

Outside CoinDesk:

  • (Wired) Wired has a long-form article detailing the takedown of “Welcome to Video,” a child exploitation ring shut down a few years ago. Crypto was a heavily featured payment tool, one which authorities took advantage of in tracing the transactions.
  • (Wired) There was a really good Decrypt article a few years back about how people linking their actual Ethereum wallets to their Ethereum Name Service identities turned out to be a bit of a privacy boondoggle. Wired has the 2022 edition with a look at how tying an NFT (non-fungible token) to your wallet might also remove any privacy barriers you would expect.
  • (Nashville Scene) Tennessee has passed legislation creating a regulatory framework for decentralized autonomous organizations (DAOs).
  • (Bloomberg) Bloomberg reporter Michael McDonald tried using nothing but bitcoin while in El Salvador’s El Zonte for five days, and chronicled his efforts alongside photographer Cristina Baussan.
  • (BuzzFeed News) Worldcoin sent folks to a handful of developing nations to scan their eyeballs in exchange for a promise for its new cryptocurrency. Some months in, the people who had their eyeballs scanned are wondering where their coins are.
  • (FastCompany) Bitcoin Miami was last week! I did not go. But here’s a retrospective from someone who did!
  • (The New York Times) The Times takes a look at state legislatures as crypto becomes an increasingly large concern in some states.

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

You can also join the group conversation on Telegram.

See ya’ll next week!


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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