The Securities and Exchange Commission’s stance on spot bitcoin (BTC) exchange-traded funds (ETFs) is difficult to maintain and the likelihood of approval is fairly high, brokerage firm Bernstein said in a research note Monday.
Bernstein notes that the SEC has already approved futures-based bitcoin ETFs and recently approved leverage-based futures ETFs, provided the futures prices come from a regulated exchange like the CME.
According to analysts led by Gautam Chhugani, the SEC believes that a bitcoin spot ETF would not be reliable because “spot exchanges (e.g. Coinbase) are not subject to their regulation and therefore spot prices are unreliable and vulnerable to manipulations are.”
Despite numerous applications, the regulator has yet to approve a spot bitcoin ETF. A unit of Blackrock filed documents to create a spot bitcoin ETF last month. This prompted other money managers such as Invesco and Wisdom Tree to apply and re-apply for a Bitcoin ETF product.
The report highlighted Grayscale’s attempt to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF), which is currently pending in an appeals court.
“The court seemed unconvinced that the futures price is not derived from the spot price, and thus allowing a futures-based ETF and disallowing spot sounds like a hard pill for the courts to swallow,” the analysts wrote .
In addition, the industry has now also proposed a monitoring agreement between the spot exchange operator and a regulated exchange such as Nasdaq, the report said.
The lack of a bitcoin spot ETF is driving the growth of over-the-counter products like the Grayscale Bitcoin Trust (GBTC), which are more expensive, more illiquid and less efficient, the broker said. Grayscale is owned by CoinDesk’s parent company, Digital Currency Group (DCG).
“SEC would rather launch a regulated bitcoin ETF, led by more mainstream Wall Street participants and overseen by existing regulated exchanges, than have to deal with a grayscale OTC product that fills the institutional void” , says the report.