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Thought leadership | 09/01/2023

Bitcoin Spot ETFs: A Matter Of When, Not If?

Some financial news can change an asset’s trajectory forever; this week’s events could be such a watershed moment. 

Grayscale, an asset management firm, scored a big court win against the SEC in pursuing a Bitcoin Spot ETF in the United States. While the SEC has previously greenlit Bitcoin futures ETFs, a federal court ruled that the SEC was wrong to reject Grayscale’s application because the institution did not explain why it was treating these financial products differently, making the decision “arbitrary and capricious.”

Per Seth Hertlein, Ledger’s Global V.P. of Public Policy, this episode could severely blow the SEC’s credibility, as it “has stretched administrative power past the breaking point. What we’re seeing play out, first in the Ripple decision and now with Grayscale, is the federal judiciary starting to reign them in. If the right case comes before the Supreme Court, the damage to the SEC’s self-styled authority could be severe.” 

After such a legal step, what are the chances of seeing a US-based Bitcoin spot ETF materialize? Eric Balchunas, an ETF Bloomberg analyst, “is upping the odds to 75% of spot bitcoin ETFs launching this year, and 95% by the end of 2024.” He believes “the legal and P.R. loss will combine to make denial politically untenable.” For Seth Hertlein, “barring extreme misconduct on the part of the SEC, the court’s order in favor of Grayscale will clear the logjam of pending BTC ETF applications. It’s mostly a matter of when, not if, they will be approved.” 

This week’s happenings matter for multiple reasons. First, a spot Bitcoin ETF would be traded through a traditional stock exchange, allowing a broader spectrum of investors to pour billions of dollars into bitcoin, even without ownership of the coin itself. Second, it shows the SEC isn’t the ultimate arbiter, which could shift crypto decision-making’s balance of power and enable a more permissive regulatory environment. For the first time, SEC’s Chair Gary Gensler may not get the last word on crypto.

A spot Bitcoin ETF could pave the way for mainstream institutional adoption and lay the groundwork for the next crypto bull run. The question on everyone’s mind is: What will happen to bitcoin’s price when the first U.S. spot ETF gets officially approved? 

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