Bernstein: The U.S. Likely to Approve a Spot Bitcoin ETF

Brokerage firm Bernstein believes that there is a strong possibility that the US Securities and Exchange Commission will approve a spot Bitcoin (BTC) exchange-traded-funds (ETF). 

In a research report released on Monday, Bernstein said the SEC is under increasing pressure to greenlight such a product, specifically since the commission has already granted approval for futures-based bitcoin ETFs and leverage-based futures ETFs. 

The reasoning behind these approvals is that futures pricing comes from regulated exchanges like the CME. 

However, the SEC remains hesitant about spot Bitcoin ETFs due to concerns about the regulation of spot exchanges such as Coinbase and the potential for price manipulation, according to analysts led by Gautam Chhugani.

Despite receiving numerous applications, the SEC has yet to approve a spot Bitcoin ETF. 

Last month, asset management firm Blackrock filed paperwork for a spot Bitcoin ETF, prompting other players like Invesco and Wisdom Tree to follow suit or reapply for their own Bitcoin ETF products.

The Chicago Board Options Exchange (CBOE) also filed a bid with the SEC on behalf of Fidelity for a spot Bitcoin ETF. 

However, the filings were returned by the SEC due to their lack of clarity and comprehensiveness.

SEC is Facing Grayscale’s Bid to Convert its GBTC to ETF

A notable development in this area is Grayscale’s bid to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, which is currently awaiting a decision from an appeals court. 

The analysts at Bernstein said that the court seemed skeptical about the argument that futures prices are not derived from spot prices. 

“The court did not sound convinced that the futures price is not derived from the spot price, and thus to allow a futures based ETF and not allow spot sounds like a difficult pill to swallow for the courts,” the analysts wrote.

In response to regulatory concerns, the industry has proposed a surveillance agreement between spot exchange operators and regulated exchanges like Nasdaq. 

This agreement would provide necessary oversight and monitoring, addressing the SEC’s worries about manipulation in the spot Bitcoin markets.

The absence of a Bitcoin spot ETF has led to the growth of over-the-counter (OTC) products like Grayscale’s Bitcoin Trust (GBTC). 

Bernstein noted that these OTC products are more expensive, illiquid, and inefficient compared to ETFs.

In fact, GBTC has been trading at around a 40% discount to net asset value for years, prompting Grayscale to seek SEC approval for a Bitcoin ETF. 

Grayscale has argued that the spot price of Bitcoin in both spot and futures ETFs is subject to the same risks, so it does not make sense to approve one product and not the other.

All in all, Bernstein believes that the SEC’s stance on spot Bitcoin ETFs may soon change. 

With the growing interest from asset managers and the industry’s proposed surveillance agreement, there is a strong likelihood that the US will approve a spot Bitcoin ETF in the near future. 

“SEC would rather bring in a regulated bitcoin ETF led by more mainstream Wall Street participants and with surveillance from existing regulated exchanges, than having to deal with a Grayscale OTC product filling the institutional gap,” the report said.