Very Soon, There Will Be Bitcoin ETFS. The SEC Issues Its Final Feedback, and Applicants Answer Before the ETF Vote

Bitcoin and other cryptocurrency investments have surged in recent months, primarily due to the excitement surrounding the potential introduction of spot bitcoin ETFs. The highly anticipated release is just around the corner.

Regulatory authorization for spot bitcoin ETFs will likely be granted within the coming days, and the SEC released its final remarks to applicants on Monday evening, prompting asset managers to submit their responses quickly by Tuesday morning.

A potential Bitcoin ETF would directly possess Bitcoin assets. On the other hand, the ProShares Bitcoin Strategy ETF (BITO), which happens to be the inaugural bitcoin-related ETF in the United States, allocates its investments towards bitcoin futures contracts. Spot bitcoin ETFs are anticipated to open up fresh and more considerable prospects for institutions to delve into cryptocurrencies and other digital assets.

“We are witnessing the dawn of an unprecedented era of growth in the cryptocurrency market – and the surge in spot ETF activity plays a vital role in this upward trend,” expressed Diogo Monica, the esteemed president and co-founder of Anchorage Digital. Anchorage assists organizations in purchasing, storing, and overseeing digital assets.

However, while specific individuals in the crypto community view spot bitcoin ETFs as a significant positive factor for digital assets in 2024, others believe that regulatory approval could potentially lead to a sell-off in the short term.

Bitcoin surged to its highest levels in 20 months, surpassing $45,000 at the beginning of 2024 and briefly reaching over $47,000 on Monday. Shares of Marathon Digital (MARA), CoinDesk (COIN), Riot Platforms (RIOT), and other stocks in the cryptocurrency sector have experienced a remarkable surge in value over the past few months. However, they have retreated from their peak levels since the end of last week.

The Impact of Bitcoin ETFs on Institutional Demand

The Securities and Exchange Commission is currently reviewing thirteen applications for bitcoin exchange-traded funds. Applications have been submitted by a variety of companies, such as BlackRock (BLK), ARK Invest, Grayscale Investments, WisdomTree, VanEck, Valkyrie, Invesco, and Fidelity.

According to Bloomberg Intelligence ETF analyst James Seyffart, the SEC will be reviewing ETF applications from Friday, January 5, to January 10. This information was reported on December 1 via X. Forbes says that those dates represent the application deadlines filed by ARK Invest, led by Cathie Wood.

Seyffart anticipates receiving approvals sometime between January 8 and January 10. He believes there is a slim possibility, less than 10%, that the SEC will reject the filings before January 10. According to Seyffart, the SEC has the potential to grant approval orders for at least nine applications prior to the deadline.

Deadline Set by the SEC for December

The SEC has set a deadline of December 29 for Bitcoin ETF applicants to provide their final updates. According to Fox Business, failing to catch it would put them at risk of missing out on the initial surge of potential approvals. BlackRock and ARK Invest both made changes to their applications in response to regulators’ requests during the week of December 18.

These updates now enable investors to redeem their investments in cash instead of being restricted to only Bitcoin withdrawals. Grayscale Investments presently runs a bitcoin trust valued at $26 billion, with aspirations to transform it into an ETF. According to CoinDesk, it is considered the most significant investment platform for Bitcoin globally. Grayscale also revised its filing on December 26 to embrace the cash redemption model.

During a recent interview with Yahoo Finance, Cathie Wood, the CEO of ARK, she expressed her belief that the SEC will approve multiple ETF applications simultaneously.

According to Deribit, data suggests that the surge in demand has already commenced. According to Chief Commercial Officer Luuk Strijers, there has been a significant increase in institutional activity since late October, as reported by The Block, a prominent crypto news site. In a recent survey conducted by Nasdaq in 2022, 72% of financial advisors from 500 firms expressed a greater inclination to invest client assets in cryptocurrency if there were spot ETF products available in the United States.

“The introduction of a spot bitcoin ETF would simplify access for traditional participants who have been more cautious in joining the ecosystem, enabling a significant influx of institutional capital,” commented Monica from Anchorage Digital. “We anticipate significant establishments – such as hedge funds, sovereign wealth funds, and registered investment advisors – to be the driving force behind the increase in ETF investments.”

Anchorage Digital runs a cryptocurrency platform catering to institutional clients and boasts a valuation exceeding $3 billion. It proudly showcases support from prominent investors such as KKR & Co. and Goldman Sachs (GS). Our client base includes a wide range of organizations, such as venture capital firms, registered investment advisors, asset managers, and crypto protocols like Apollo Protocol and Visa (V).

Last-Minute Changes and Additional Charges Disclosed

The New York Stock Exchange, Nasdaq, and Cboe have submitted 19b-4 amendments for 11 of the bitcoin ETF proposals before the January 5 deadline. The 19b-4 filings encompass modifications that require approval from the SEC, granting exchanges the authority to list the funds.

Meanwhile, 11 asset managers have made changes to their S-1 applications as of January 8 following discussions with regulators, as reported by Reuters. Out of these changes, ten were submitted on January 8. According to Bloomberg data, the ten issuers made filing amendments on January 9 to address recent comments and make final adjustments to the language.

According to a report by Bloomberg on January 5, SEC representatives stated that they have yet to receive any further feedback before the upcoming votes. Prior to the launch of the ETFs, the approval of the 19b-4 filings and S-1 filings by the SEC will be required. Several companies have stated that they anticipate obtaining the final approval for their S-1 filings by either late Tuesday or Wednesday, according to Reuters. Seyffart from Bloomberg noted on Tuesday that he expects approval orders to be issued on Wednesday, potentially leading to early launches on Thursday.

Initial Investment

A number of the possible ETF issuers are already gathering initial funding in preparation for their upcoming releases. Bitwise recently revealed their intention to secure a substantial $200 million seed investment, which stands in stark contrast to the comparatively modest $10 million investment announced by BlackRock. VanEck has secured a significant amount of $72.5 million to support its potential spot bitcoin ETF.

The Influence of ETFS on the Price of Bitcoin

Analysts have differing opinions on how the approval of ETFs will affect the price of Bitcoin despite the potential it holds within the institutional realm.

“A spot ETF for bitcoin that is regulated by the SEC would be a groundbreaking development for the digital asset ecosystem, which means that the industry will be closely monitoring the price action,” Monica stated. “The quantity and speed of ETF inflows are expected to play a significant role in influencing the price of bitcoin both in the near future and in the long run.”

According to VanEck’s analysis, the approval of a spot bitcoin ETF is expected to result in a significant influx of approximately $310 million into the bitcoin spot market within the initial days. According to its predictions, a substantial amount of $750 million is expected to flow into spot bitcoin ETFs within a quarter, with an impressive $40.4 billion influx over the first two years.

This surge is attributed to bitcoin’s ability to capture a significant portion of the market previously dominated by gold. Matthew Sigel, the head of digital asset research at VanEck, shared his insights in VanEck’s report on 15 Crypto Predictions for 2024.

These incoming investments into recently authorized spot bitcoin ETFs are likely to provide support for the price of bitcoin.

“Despite the potential for considerable fluctuations, it is highly improbable that the price of bitcoin will drop below $30k in the first quarter of 2024,” Sigel stated.

It is important to mention that the value of the cryptocurrency has experienced a significant decrease of almost 35% compared to its trading price on Monday. In a recent interview with CNBC, Michael Sonnenshein, the CEO of Grayscale Investments, expressed his belief that the approval of a spot bitcoin ETF could have a significant impact on the advised wealth market, potentially unlocking a staggering $30 trillion. Sonnenshein’s optimistic outlook highlights the potential opportunities that a spot bitcoin ETF could bring to the table.

Should You Sell the News of Bitcoin ETFs?

Cathie Wood believes that the initial round of authorizations may potentially lead to a decline in the bitcoin value, as investors opt to cash in on their gains.

“There has been a significant and highly anticipated development,” Wood informed Yahoo Finance. “Individuals who have been engaging in transactions and experiencing favorable financial gains are likely to divest their holdings upon receiving the latest information.”

However, this only applies in the immediate future. Wood believes that organizations have shown reluctance to engage in cryptocurrency until the Securities and Exchange Commission (SEC) grants approval for a bitcoin exchange-traded fund (ETF). “It would be ideal if the vast amount of institutional assets could allocate a small percentage, perhaps 0.1% or 0.2%, to an ETF,” expressed Wood. “And that will cause a substantial shift in the price.”

JPMorgan is also anticipating a significant possibility of a sell-the-news occurrence, and holds a more prudent stance compared to numerous companies regarding cryptocurrency in 2024.

“The team of analysts, led by Nikolaos Panigirtzoglou, noted that the surge in optimism among crypto investors, driven by the anticipated approval of spot bitcoin ETFs by the SEC, has pushed bitcoin into the overbought territory reminiscent of the levels observed in 2021.” They anticipate that the current funds will reallocate within the cryptocurrency ecosystem, rather than witnessing an influx of new funds.

Regarding regulations, SEC Chair Gary Gensler remains cautious about unlawful actions in the cryptocurrency space, even though the agency is reevaluating spot bitcoin ETF applications in light of recent court decisions.

“There has been an excessive amount of fraudulent activity and untrustworthy individuals in the cryptocurrency industry,” Gensler expressed to CNBC on December 14th. “There is a significant lack of adherence, not just to the securities laws, but also to other regulations concerning anti-money laundering and safeguarding the public from unscrupulous individuals in that domain.”

Is Bitcoin’s Demise Imminent?

According to Arthur Hayes, one of the co-founders of BitMex, the involvement of institutional players may have a negative impact on the bitcoin network.

“In a blog post on December 23rd, Hayes expressed concerns that if ETFs overseen by traditional finance asset managers achieve significant success, it could potentially have a detrimental impact on the value of bitcoin,” Hayes stated. It was observed that the rewards for mining bitcoin will eventually reach zero, estimated to occur around the year 2140. After this point, miners will solely rely on transaction fees as their source of income for verifying transactions.

“However, in the absence of any future bitcoin transactions between two parties, miners would find it increasingly difficult to cover the expenses associated with maintaining the network’s security,” Hayes expressed. “Consequently, they would power down their devices.” Without the miners, the network ceases to exist and bitcoin disappears.

Hayes contended that asset managers such as BlackRock are engaged in the pursuit of amassing assets.

“They collect assets, safeguard them in a symbolic vault, create a tradable security, and levy a management fee,” he wrote. “They fail to utilize the assets entrusted to them by their clients, posing a potential challenge for the future of bitcoin if we consider an extreme scenario.”

However, in the event that bitcoin “becomes obsolete due to lack of usage,” this paves the way for another cryptocurrency network to emerge, as stated by Hayes.

However, Monica and Anchorage Digital hold a different perspective, asserting that traditional finance firms will not have a detrimental effect on the cryptocurrency.

“According to Monica, the increasing involvement of institutions will further enhance the positive long-term prospects for bitcoin and the entire asset category.” “Introducing a spot ETF would open up a realm where bitcoin has the potential to be included in a wide range of retail and institutional portfolios.” This potential presents a significant market prospect.