SEC Still Against Spot-based Bitcoin ETFs. Is there a light at the end of the tunnel?

With the approvals of futures bitcoin ETFs, companies have taken it one step further and have applied to the Securities and Exchanges Commission (SEC) for spot-based bitcoin ETFs. However, unlike their futures and short-term counterparties, spot ETFs have not found favor in the eyes of the regulatory watchdog. And as several spot-based bitcoin ETF applications are rejected by the SEC, the question has arisen as to whether the market will see one anytime soon.

Grayscale and bitwise applications rejected

Over the past month, expectations had built up regarding point-based Bitcoin ETF submissions from both Grayscale and Bitwise. Grayscale had filed the application last year, and the SEC postponed the decision several times, but the firm had remained steadfast in its decision to try to get approval for a spot bitcoin ETF. The final decision came last week, and it was in fact negative as experts had predicted.

Grayscale had had its application rejected, but it was not the only one. Bitwise had also submitted an application for a spot BTC ETF, and the SEC had also put a rejection stamp on it. The latter had applied to convert its popular Grayscale Bitcoin Trust (GBTC) into a spot-based ETF. The $ 12.35 billion fund is the largest bitcoin trust and wants to move to the next level.

Related reading | Assembly of support for Bitcoin to $ 19,000 as market leader in a new week

At the time of the rejection, Grayscale had quickly filed a lawsuit against the SEC alleging that the regulatory body had no reason to reject the application. Michael Sonnenshein, CEO of Grayscale, lamented the fact that the SEC had given the green light for four futures bitcoin ETFs in less than a year, but had refused to approve any spot-based BTC ETFs, accusing them of “behaving arbitrarily and capriciously.” “

Grayscale discount grows | Source: Arcane Research

However, the SEC has said that the rejection was due to fears of market manipulation in the bitcoin spot markets, the role that stablecoin Tether will play in this, and the general lack of regulated exchanges and monitoring in the bitcoin market.

Bitwise, on the other hand, has not made any move after the rejection and seems to take this on the chin.

Will there be a spot-based Bitcoin ETF?

With the rejection, the reality of a spot-based bitcoin ETF coming to market has been pushed back again. Given the time frame it took for the SEC to make a decision on these ETFs, it is expected that filing and deciding on another spot-based ETF could take almost two years or approximately 18 months. This means that the market is unlikely to see a spot-based BTC ETF this year, contrary to what was predicted by market analysts in 2021.

BTC holding shakily above $20,000 | Source: BTCUSD on TradingView.com

Nevertheless, Grayscale has not backed down on its mission to turn GBTC into a spot-based ETF. The trial is still in an early stage, but the CEO has expressed hope that they will get a decision within the next year.

Related reading | Institutional investors remain bearish as Short Bitcoin sees record highs

Grayscales GBTC continues to trade at a high discount, and the company’s annual management fee is fixed at 2%. This means that if the application to convert to a spot-based ETF is not approved within the next two decades and does not remain closed, it will not be able to justify the discount at which it is currently traded. But with the firm’s efforts to get approval from the SEC, it’s not hard to believe that it will get it over the next 20 years.

Featured image from Coincu News, charts from Arcane Research and TradingView.com

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