US SEC Re-Reviews Bitcoin ETF: Will It Be a Shot in the Arm for the Crypto Market?

On the morning of May 25 local time, according to two documents released by the U.S. Securities and Exchange Commission (SEC), the SEC has officially begun reviewing Sky Bridge and Fidelity's Bitcoin ETF applications, namely "The First Trust Sky Bridge Bitcoin ETF Trust" and "Wise Origin Bitcoin Trust." According to the documents, Sky Bridge's ETF application would trade on the New York Stock Exchange, while the Wise Origin ETF has applied to trade on the CBOE BZX Exchange.

Securities and Exchange Commission

SEC begins reviewing "Wise Origin Bitcoin Trust" document, source SEC official website

It is understood that both ETF applications were submitted in March of this year. Sky Bridge Capital partnered with investment advisor First Trust Advisors to develop an ETF product pegged to the Bitcoin price, which uses a proprietary index from multiple price sources to track Bitcoin's daily price movements, thereby providing investors with more diverse investment targets. According to current regulations, the SEC will make an initial decision on the above Bitcoin ETF applications within 45 days, unless it extends the window period, up to a maximum of 240 days. That is to say, barring any unexpected events, the SEC will make a decision as early as early July to reject or approve these two Bitcoin ETF applications; if delayed, the answer will be revealed at the latest early next year.

Of course, there are currently more than just these two Bitcoin ETFs awaiting SEC review. According to media reports, there are four other applications currently undergoing official review, namely Bitcoin ETF applications submitted by Van Eck, Kryptoin, Wisdom Tree, and Valkyrie. Previously, due to concerns about Bitcoin price manipulation and volatility, the U.S. Securities and Exchange Commission has not approved any Bitcoin ETF. This shows that the SEC has always maintained a cautious and careful review attitude toward Bitcoin ETF products.

Taking Van Eck's application, which is currently at the front, as an example:

In December 2020, Van Eck submitted its latest S-1 application to the SEC. On March 1, 2021, the Chicago Board Options Exchange, based on Van Eck's application, submitted documents to the SEC for listing and trading the Van Eck Bitcoin ETF. In mid-March, the SEC confirmed receipt of the above two applications, thereby opening a 45-day review window. As the 45-day review period was about to end on May 3, the SEC, unsurprisingly, announced another 45-day extension of the approval deadline, postponing it to June 17. According to industry analyst Mary Sheldon, the review window for this application is likely to be further extended to 240 days. This suggests that the Bitcoin ETF applications submitted by Van Eck, Sky Bridge, and Fidelity will have significant overlap in review time, and the SEC will likely make decisions simultaneously at some point, meaning investors will need to continue waiting for the launch of the first U.S. Bitcoin ETF.

SEC Assistant Secretary J. Matthew De Les Dernier stated: "The Commission believes it should designate a longer period to take action on the proposed rule change, so there is sufficient time to consider the proposed rule change and comments received."

In contrast to the cautious attitude toward Bitcoin ETFs, the SEC's review of trust-based trading products is much more lenient. For example, Grayscale, a company we're familiar with — in January 2020, Grayscale Bitcoin Trust submitted an application to the SEC to register, becoming the first digital asset product to meet SEC standards; in April of the same year, Grayscale Bitcoin Trust officially became effective; four months later, on August 6, Grayscale submitted an Ethereum trust registration application to the SEC, and two months later Grayscale announced that its submitted Ethereum trust registration application had been officially approved, thus making both Grayscale Bitcoin Trust and Ethereum Trust SEC reporting companies.

Over the past few years, Grayscale Bitcoin Trust has also had its moments of glory. In terms of holdings, from June 2020 to May 2021, it grew from $3.5 billion to over $41 billion, an increase of more than 10 times. In terms of holdings volume, the number of Bitcoin held by Grayscale Bitcoin Trust also grew from 365,000 to over 650,000 in the past year, an increase of over 78%.

Grayscale single-asset trust fund holdings

Grayscale Bitcoin Trust holdings over the past year, source OK Link

In terms of secondary market premium rate, GBTC's premium rate also maintained a high level of over 10% for a long time, and in the previous bull market even recorded a premium rate of 132%.

Grayscale secondary market premium rate

Grayscale Bitcoin Trust secondary market premium rate over the past year, source OK Link

However, with the booming development of the crypto market and significant growth in trading activity, the shortcomings of trust products in terms of liquidity, investment threshold, and professionalism have gradually emerged. Represented by Grayscale Bitcoin Trust, its holdings growth has basically shown zero growth since entering 2021, while its attractiveness in the secondary market has also significantly declined. Since first showing a negative premium on March 2, it has maintained a negative premium state for 86 consecutive days.

Facing crisis, Grayscale is also actively seeking self-rescue measures. Its application submitted to the SEC in early April to transform the Bitcoin Trust product into an ETF is an important part. This also reflects from the side that investors in the crypto market are looking forward to more flexible Bitcoin ETF products with lower thresholds. In the previous article "Why the Crypto Market Expects Bitcoin ETF" , we introduced in detail the differences between Grayscale Trust products and Bitcoin ETFs, so we won't repeat them here.

Next, let's turn our attention to Canada — this U.S. neighbor, whose regulatory authority has already approved multiple Bitcoin ETFs as early as March this year. The first one, The Purpose Bitcoin ETF, accumulated $1 billion in assets under management in less than two months after launch and successfully listed BTCC.B, BTCC.U, and BTCC investment targets on the Toronto Stock Exchange. As of May 26, the fund still manages over 18,700 Bitcoin , worth approximately $722 million.

Fund Details

The Purpose Bitcoin ETF, source purposeinvest official website

One month after approving the Bitcoin ETF, Canadian regulators approved three Ethereum ETFs in one go in mid-April — Purpose Investments, CI Global Asset Management, and Evolve ETFs — which successfully listed and traded on the Toronto Stock Exchange. In one trading day, trading volume exceeded $100 million.

Against this backdrop, market expectations for the U.S. SEC to approve a Bitcoin ETF have clearly heated up. Galaxy Digital CEO Mike Novogratz recently stated on his social media account that a Bitcoin ETF could launch within a year. He further emphasized that ETFs are much better than other products offered by institutions. He also hinted that Gary Gensler, the new SEC chairman appointed in April, is "smart" and will soon approve this plan. Regarding speculation that recent market turmoil might mean the SEC suspends approval, Mike Novogratz believes: "It makes no sense to approve the Grayscale Trust but not approve an ETF." He also stated that Ethereum's expansion speed is somewhat slow, which has led to explosive growth in other ecosystems.

Unlike Mike Novogratz's optimistic expectations, some investors in the crypto market believe that in June 2019, then-SEC Chairman Jay Clayton stated that "price manipulation is a potential concern for the SEC." As long as Bitcoin's severe price volatility and the SEC's suspected "price manipulation" have not significantly improved, the SEC is unlikely to approve a Bitcoin ETF. One should not be too optimistic due to the new SEC chairman's personal friendly attitude toward crypto assets.

Setting aside the discussion of when the U.S. SEC will approve a Bitcoin ETF, some investors believe that even if the SEC successfully approves one or several Bitcoin ETFs for listing and trading within the year, it could very well be a signal that the market is accelerating toward a top, just like the market trend after CBOE and CME successively launched Bitcoin derivatives trading in December 2017.

From OKX market information, we can see that in early December 2017, influenced by this positive news, Bitcoin's price showed significant gains for multiple consecutive days, but on the day CME derivatives trading officially launched, it completely peaked and reversed, starting a 3-year bear market.

BTC/USDT

Bitcoin price trend from late 2017 to early 2018, source OKX

Therefore, we still need to view Bitcoin ETF products dialectically. On one hand, if the U.S. SEC brings Bitcoin ETFs under its regulatory scope, it will objectively help stabilize the crypto market, investors' rights and interests will be protected to a greater extent, and it will also significantly lower the barrier for ordinary investors to enter the crypto market. On the other hand, we must also have sufficient risk management plans to guard against market volatility caused by early investors significantly realizing profits after positive news is realized.

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