As the deadline for Bitcoin ETF applications gets closer, many believe the US Securities and Exchange Commission (SEC) is ready to give the green light to spot Bitcoin ETFs.
Yet, Bloomberg’s ETF specialist, Erich Balchunas, points out a possible hurdle. He suggests that the SEC may demand straightforward language about cash-only creations and a signed agreement with an authorized participant (AP).
Grayscale’s Potential ETF Advantage Raises SEC Concerns
In a recent post on X (formerly Twitter), ETF expert Erich Balchunas discusses the challenges the US Securities and Exchange Commission (SEC) faces in approving Grayscale’s potential conversion of its Grayscale Bitcoin Trust (GBTC) into an ETF.
New one from me today on how just making it to the starting gate is half the battle for ETF issuers in the Cointucky Derby, it's the race before the race, currently a mad scramble behind scenes to get signed AP agreements, a critical but not easy last step. pic.twitter.com/IF58KQthcV
— Eric Balchunas (@EricBalchunas) December 27, 2023
While Grayscale meets certain requirements, including cash-only creations and an agreement with an authorized participant, Balchunas points out that its existing advantage in embedded assets and volume might create an uneven playing field.
The SEC’s primary focus is on ensuring fair competition among all qualifying issuers. Balchunas suggests that the SEC may view Grayscale’s potential ETF approval as problematic due to the substantial advantage it would have from the outset. With $20 billion in embedded assets and a daily embedded volume of $150 million, GBTC would instantly become one of the top 1% of all ETFs. This poses a delicate situation for the SEC, as approving GBTC could risk favoring a single participant and disrupting fair competition in the ETF market.
SEC Balancing Act in Bitcoin ETF Approval
Erich Balchunas emphasizes that adding clear language about cash-only creations in Bitcoin ETF applications doesn’t necessarily make them less appealing to investors. A key advantage lies in grantor trusts, like GBTC, being exempt from taxation at the fund level, addressing a significant concern. Examining the approximately 450 existing cash-only ETFs, their spreads and premium/discount ratios appear to be within reasonable ranges.
The SEC grapples with the challenge of ensuring fairness while considering potential advantages certain issuers may have in terms of embedded assets and trading volume. The commission aims to level the playing field by mandating clear language on cash-only creations and signed agreements with authorized participants. However, given Grayscale’s substantial market advantage, the SEC must carefully weigh the impact of approving GBTC.
The SEC’s decision will significantly shape the competitive landscape of the Bitcoin ETF market, impacting established players like Grayscale and industry giants such as BlackRock and Fidelity.
Currently, the price of Bitcoin is $42,800, reflecting a modest 0.6% increase in the last 24 hours. However, over the past seven days, the leading cryptocurrency has experienced a 2.3% decline.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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