The Journey to Bitcoin ETF Approval: A Detailed Look

Photo - The Journey to Bitcoin ETF Approval: A Detailed Look
"A journey that spanned a lifetime" – this phrase aptly encapsulates the saga of the spot Bitcoin ETF in the USA. The narrative is filled with initial applications, rejections, approvals abroad, legal tussles, forecasts, and ultimately, triumph. Let’s revisit this remarkable journey.
The approval of the Bitcoin ETF has been a long-cherished goal for crypto enthusiasts since 2017, anticipating a surge in cryptocurrency popularity among mainstream investors. This was expected to bring in fresh capital and boost the value of crypto assets.

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

The integration of Bitcoin into the traditional economic sector began in 2013 with the establishment of the Grayscale Bitcoin Trust. The company introduced a means to access BTC in the form of securities, removing the complexities associated with directly purchasing and storing cryptocurrency on the blockchain.

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:

A Mad Magazine page featuring the Winklevoss twins. Source:

In 2017, after prolonged negotiations with the SEC, the leadership of Grayscale decided to withdraw their previously submitted application for a Bitcoin ETF. They believed that such a product could not yet be successfully introduced to the market.

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

From March to September 2017, the SEC received 21 comments from the public regarding Bitcoin ETFs. For instance, Boston University finance professor Mark T. Williams presented a list of reasons why a Bitcoin ETF should not be approved. His concerns included: 

  • 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.
Despite these diverse viewpoints, the SEC maintained its cautious stance on Bitcoin ETFs. In 2018, it rejected the Winklevoss Bitcoin Trust for the second time. Notably, on August 28 of that year, the Commission turned down nine applications in one go.

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

It may come as a surprise, but the first-ever Bitcoin ETF was approved in Canada. This landmark event occurred on February 12, when the Canadian regulator greenlit the trading of Purpose Investments' spot Bitcoin ETF. It became available on the Toronto Stock Exchange under the ticker BTCC.U.

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:

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:

An intriguing development: Fidelity Financial Services, growing impatient with the US's hesitation on Bitcoin ETFs, sought approval in Canada. On December 2, their application was approved, allowing their fund to be listed under the ticker FBTC.

Following Canada's lead, Brazil became the next country to approve a Bitcoin ETF on March 19, 2021.

New Bitcoin ETF Applications: 2021–2022

In February 2021, Rick Rieder, the chief investment officer at BlackRock, announced their foray into cryptocurrencies, though he kept the details under wraps. This was a pivotal moment, considering BlackRock's management of over $8 trillion in assets at that time.
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.
The next major discussion about BlackRock's involvement with Bitcoin ETFs wouldn't emerge until the summer of 2023, but more on that later.

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.

Other notable applications included:

  • 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

On October 15, 2021, the Bloomberg Terminal was set to add the ticker BITO for the ProShares Bitcoin Strategy, a futures ETF. The SEC granted its approval on the same day, announcing that it would start trading on the New York Stock Exchange on October 19. BITO's trading volume reached 24.1 million shares (approximately $1 billion) on its debut.

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:

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:

Within two days of the start of trading of the first Bitcoin futures ETF in the USA, the price of BTC dropped by 18.8%. However, in the subsequent 49 days, it rallied by 73.9%, reaching an all-time high of $69,000.

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

BlackRock is one of the largest investment firms in the traditional financial market. On June 14, rumors surfaced about BlackRock's plans to seek approval for a Bitcoin ETF. 

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.

This was just the beginning of a series of upbeat developments in the sector. Following in BlackRock's footsteps, several notable companies threw their hats into the ring for spot Bitcoin ETFs in June:

  • WisdomTree;
  • Invesco;
  • Valkyrie;
  • Fidelity.

Adding to this momentum, on June 22, the SEC approved the first leveraged Bitcoin ETF – the 2x Bitcoin Strategy ETF (BITX) by Volatility Shares.

Amidst these events, a significant clash brewed between Grayscale and the SEC. Grayscale openly criticized the Commission for its double standards in approving leveraged ETFs while consistently rejecting spot ETF applications. Their lawyers highlighted that leveraged ETFs posed even greater risks than their spot counterparts.

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.
Following this, the SEC's stance over the next two months was marked by a string of rejections and postponements of decisions on Bitcoin ETF applications. However, in a turn of events, on September 29, the SEC sanctioned Valkyrie's Ethereum futures ETF, listed as EFUT. Its trading debut saw a volume of $882,000.

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:

The correlation between Bitcoin prices and the 2023 ETF-related developments. Source:

Amidst these developments, Gary Gensler voiced concerns over rampant fraud, insolvency, and money laundering in the crypto market. Despite this, companies kept submitting revised S-1 forms for a spot Bitcoin-ETF to the SEC and intensified their promotional campaigns, marking the year's dramatic close.

Bitcoin ETF Gets the Green Light: 2024

On Monday, January 8, 2024, Gary Gensler, referencing the scenario of approving a futures Bitcoin ETF, highlighted the intricacies of investing in cryptocurrencies. For seasoned market participants, this acted as a hint of a potential ETF approval in the imminent future.

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

Whether to rely on historical data to forecast BTC's future price is up to individual discretion. However, an analysis of the trends shows that after the futures Bitcoin ETF was approved in 2021, BTC first dipped by 18% and then experienced a significant 73% increase.

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.

Vlad Vovk
Writes about DeFi and cryptocurrencies from a technological perspective.