The Journey to Bitcoin ETF Approval: A Detailed Look
Yet, many are unaware that this process began over a decade ago with the Winklevoss twins filing the world's first Bitcoin ETF application. Since then, the SEC has been inundated with, delayed, and denied requests from numerous companies. However, as history was made on January 10, 2024, the Securities and Exchange Commission (SEC) at last sanctioned a spot Bitcoin ETF in the USA.
The First Bitcoin ETF Applications: 2013
At that time, few believed in the concept put forth by the Winklevoss twins, Cameron and Tyler. It even ranked as the fifth "stupidest" thing of 2013, according to Mad Magazine.
A Mad Magazine page featuring the Winklevoss twins. Source: twitter.com
Looking ahead, the story of Grayscale and the SEC did not end there. The company would go on to submit new applications multiple times, and in 2023, they would even win a court case against the regulator. But let's go through it all step by step.
The Calm Before the Storm: 2017–2020
- The challenge of determining the fair value of the asset.
- Low transaction volume compared to traditional markets.
- Limited trading activity.
- High volatility.
Yet, some voices saw potential benefits.
Moving bitcoin trading activity to regulated US exchanges will improve price discovery and reduce the potential for manipulation and money laundering,wrote James J. Angel, a finance professor at Georgetown University.
The momentum for securing SEC approval for Bitcoin ETFs reignited only towards the end of 2020. JPMorgan highlighted that the institutional interest in Grayscale Investments' BTC trust was surpassing that in gold ETFs.
In December 2020, VanEck filed its third application for a Bitcoin ETF, after two previous rejections. This new Form S-1 eventually played a pivotal role in paving the way for ETF acceptance in the USA.
The First Bitcoin ETF Approval in Canada: 2021
In just four days after its inception, the ETF attracted 8,288 BTC, with the total assets under management exceeding half a billion dollars. Concurrently, BTC's value saw a 10% rise.
Just five days later, another Bitcoin ETF from Evolve Funds Group Inc (ticker – EBIT) received approval. Within its first week, the fund accrued an additional 10,000 BTC.
Continuing this trend, on March 9, a third Bitcoin ETF from CI Global Asset Management received approval, trading under the ticker BTCX. Then, in a little over a month, the Canadian regulator approved the world's first Ethereum ETF, introduced by Purpose Investments.
The correlation between the BTC price and approval of Bitcoin and Ethereum ETFs in Canada in 2021. BTC/USDT chart on the 12H timeframe. Source: tradingview.com
Following Canada's lead, Brazil became the next country to approve a Bitcoin ETF on March 19, 2021.
New Bitcoin ETF Applications: 2021–2022
Technology and regulation has evolved to the point where many are starting to see bitcoin as part of the portfolio, and this is pushing the price up,Rick Rieder noted.
Shortly after this statement, in early March, Grayscale hinted at its intentions by listing ETF-related job openings on its website. The crypto community correctly interpreted this as a sign of the company's renewed interest in applying for a Bitcoin ETF.
The story of 2021 in the Bitcoin ETF space was dominated by a flood of applications and a string of rejections. Firms such as New York Digital Investment Group, WisdomTree, Fidelity Investments, VanEck, and ARK Invest were among the many vying for Bitcoin ETF approval during this period.
- On March 2, Cboe Global Markets filed for the listing and trading of ETF shares from VanEck.
- On June 10, Invesco applied for ETFs based on shares of crypto-related companies.
- On December 29, ProShares filed for the metaverse ETF.
2021 was a year marked by a flurry of Bitcoin ETF applications, but 2022 became known for its numerous rejections. Grayscale's case stands out particularly: following another rejection, they filed a lawsuit against the SEC on July 30, 2022, and triumphed a year later.
Approval of Futures Bitcoin ETFs in the US: Autumn 2021
Following ProShares, on October 22, the second Bitcoin futures ETF was launched on Nasdaq by Valkyrie Investments under the ticker BTF.
In October, the SEC also approved a similar ETF from VanEck. It began trading on the Chicago Board Options Exchange (Cboe) under the ticker XBTF on November 16.
The correlation between the BTC price and approval of Bitcoin futures ETFs in the US in 2021. BTC/USDT chart on the 6H timeframe. Source: tradingview.com
An intriguing fact: A day before BITO's approval, the SEC's Office of Investor Education and Advocacy released a statement warning about the risks of futures Bitcoin ETFs. Gary Gensler echoed this approach a day before the approval of the spot Bitcoin ETF in early 2024.
BlackRock Joins the Fray and Grayscale Alters the Playbook: 2023
This anticipation was quickly addressed. The next day, BlackRock's iShares division took a definitive step by applying for a spot Bitcoin ETF. The announcement impacted the Bitcoin market, with its value dropping to $24,800 on that day – the lowest it would be throughout the rest of the year 2023.
Adding to this momentum, on June 22, the SEC approved the first leveraged Bitcoin ETF – the 2x Bitcoin Strategy ETF (BITX) by Volatility Shares.
The struggle culminated in a triumph for Grayscale on August 29, as the court ruled in the investment fund's favor.
In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful. We therefore grant Grayscale’s petition for review and vacate the Commission’s order,the court document stated.
A pivotal moment arrived on October 13. The SEC announced it wouldn't challenge the court's verdict on Grayscale's Bitcoin ETF, leading to a bullish sentiment in the market. Bloomberg's analysts, within hours, estimated a 90% likelihood of a Bitcoin ETF approval, resulting in the BTC price breaching the $27,000 mark.
BTC's rally was further fueled by a spurious news piece on October 16, falsely suggesting the approval of iShares' spot Bitcoin ETF, causing a 10% spike in its price.
The correlation between Bitcoin prices and the 2023 ETF-related developments. Source: tradingview.com
Bitcoin ETF Gets the Green Light: 2024
The next day, the SEC, via the X platform (formerly known as Twitter), made an announcement approving a Bitcoin ETF. However, the excitement was short-lived as it was later revealed that the X account had been hacked, with the lack of 2FA verification being cited as the primary reason for the security breach.
Finally, on January 10, 2024, the SEC officially sanctioned the launch of a Bitcoin ETF!
Conclusion: Interpreting Historical Patterns
Determining whether this fluctuation was exclusively due to the ETF's approval or influenced by other factors is complex. It's crucial to remember the significance of understanding risks and engaging in thorough independent research. Always make informed decisions and avoid common pitfalls.