The U.S. Securities and Exchange Commission’s approval in early April of a bitcoin futures exchange-traded fund (ETF) from Teucrium based on different laws has given hope to crypto investors and fund issuers that a spot bitcoin ETF will finally get the green light soon.
Many bulls had given up on the possibility of a spot bitcoin ETF getting approved this year given the SEC’s numerous rejections based on concerns about the lack of investor protections and appropriate market surveillance. Applications from Bitwise, WisdomTree, Fidelity and Ark 21 Shares, among others, have seen nothing but rejections or extensions of their applications.
But Teucrium filed its successful application under the “33 Act” (or the Securities Act of 1933) and the “34 Act” (or the Securities Exchange Act of 1934), rather than the “40 Act” (the Investment Company Act of 1940) that the SEC approved all previous bitcoin futures ETFs under.
As CoinDesk’s Nikhilesh De pointed out last week, 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 trading volume is on the Chicago Mercantile Exchange, a traditional exchange with well-established surveillance tools in place.
Given that the spot bitcoin ETF applications have all been filed under the 33 and 34 Act, however, some see the Teucrium decision opening the way for a spot ETF to win approval.
‘A really positive step forward’
“The SEC is now not only comfortable with futures-based ETFs regulated under the 40 Act and all the investment protections there, but also futures-based ETFs regulated under the 34 and the 33 Act, the same act that these spot-based ETFs will be regulated under,” said Craig Salm, chief legal officer for Grayscale Investments, which is trying to get its Bitcoin Trust (GBTC) converted into a spot bitcoin ETF. Digital Currency Group, Grayscale’s parent company, also owns CoinDesk.
“It’s a really positive step forward on the path of ultimately getting approval for spot-based ETFs,” Salm added.
Dave Abner, who is the head of global business development for crypto exchange Gemini and who previously spent 20 years focused on expanding the ETF industry, also said he was encouraged by the latest development.
“Approving Teucrium is a very clear sign that there’s no slowing this movement. I think one will be approved by the third quarter,” Abner told CoinDesk recently.
With over $25 billion in assets under management, GBTC is the most closely watched spot bitcoin ETF application. Grayscale is awaiting the end of a 240-day comment period issued by the SEC, in which the commission will decide by July 6 if its application will be approved.
For GBTC and its investors, an approval would be welcome news for its discount to net asset value, which sits at around 23%. The discount represents the difference between the price of the underlying bitcoin assets and the value that's implied from the price of the trust's shares. This has widened as the odds of it converting to a spot ETF have declined, while other avenues to gain bitcoin exposure have increased, including equities and spot bitcoin ETFs in Canada.
“We believe this discount should close decisively if/when GBTC converts to an ETF,” Michael Graham, an equity research analyst at Canaccord Genuity, told clients in a recent note.
‘Crawl, walk, run’
Investment firm Bitwise also has a spot bitcoin ETF application pending review with the SEC, with a final deadline of June 29.
While declining to address the fund’s specific chances of being approved because the review is ongoing, Matt Hougan, Bitwise’s chief investment officer, said “we’re making progress.”
“We’re sort of in a crawl, walk, run series,” Hougan said, adding that the Teucrium approval is no guarantee that the industry will see a spot bitcoin ETF approved soon. “But it doesn’t guarantee that we won’t either,” he said.
Others in the investment community see the need for a political shakeup before spot bitcoin ETFs come into play. Under that view, shared by George Sutton, institutional research analyst at Craig-Hallum, a spot bitcoin ETFs will eventually be approved but that may first require a change of administration.
“We believe pro-crypto politicians will appeal to a large number of single-issue, young, tech-centric voters, and that change will come, but it will likely require patience,” Sutton said.
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