The U.S. Securities and Exchange Commission (SEC) is on the verge of making a crucial decision that could greenlight the trading of a Bitcoin spot exchange-traded fund (ETF). Thirteen companies, including Grayscale Investments, BlackRock, Ark/21Shares, Bitwise, Hashdesk, Franklin Templeton, Fidelity and others, have submitted applications for a Bitcoin spot ETF, signaling a collective anticipation within the crypto investment community.
The applications are made up of two main parts. First, an exchange such as NASDAQ or NYSE must file Form 19b-4, which notifies the commission of a proposed regulation change and the rules governing the trading of the new product. The SEC’s approval of these rule changes is a prerequisite for the product to enter the market. The second part involves the S-1 approval, which is required to register the new security. Each applicant has variations in their product structures.
There is a general expectation that the SEC will approve all of the ETF applicants’ S-1 applications at the same time after the 19b-4 form is approved. However, there is no guarantee that this approach will be successful because applications vary.
With 13 similar products vying for approval, much attention is on the pricing models proposed by these companies. Invesco announced a 59 basis point cost ratio, with fees waived for the first six months and the first $5 billion in assets, whereas Fidelity stated a 39 basis point charge. Grayscale, currently charging 2%, commits to lowering fees upon approval of its ETF application. Other companies have yet to state their fees.
This unfolds amid the SEC’s ongoing tussle with the cryptocurrency industry. The commission has engaged in legal battles against major crypto players, including a loss against Grayscale, where the court ruled that both spot and future-based Bitcoin products were similar, thus the commission ought to approve both.
In the absence of explicit federal regulations, the SEC uses enforcement-based regulation to maintain control over a large portion of the cryptocurrency market. An ongoing lawsuit against Coinbase charges violations of rules requiring exchange registration. According to the SEC, some crypto assets exchanged on Coinbase qualify as securities and thus fall within its regulatory authority.
In a different court case, the SEC filed a lawsuit against Binance and its founder, CZ, in June 2023, citing failure to disclose, utilizing dishonest tactics, dodging legal obligations and having conflicts of interest. The U.A. Department of Justice (DOJ) also settled additional allegations against CZ and Binance. CZ agreed to stand down as CEO and pay a $50 million fine in addition to admitting guilt to counts of money laundering. Binance also agreed to have a government monitor in charge of its operations.
As industry players such as Canaan Inc. (NASDAQ: CAN) await the regulatory direction from Congress or the SEC, the ongoing court cases and decisions made regarding applications before regulators could provide hints about what is to come.
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