According to sources familiar with the matter, the Securities and Exchange Commission (SEC) has deemed the recent applications for spot bitcoin exchange-traded funds (ETFs) filed by asset managers as inadequate. The SEC has communicated to Nasdaq and Cboe Global Markets, the exchanges that filed the applications on behalf of asset managers like BlackRock and Fidelity Investments, that the filings lack clarity and comprehensiveness. The exchanges and asset managers have the option to address the regulator’s feedback and resubmit the applications. Cboe has already updated and refiled its applications in response to the SEC’s feedback.
The announcement of plans by BlackRock to launch an ETF that holds actual bitcoin has led to a surge in the prices of bitcoin and crypto-related stocks since mid-June. Bitcoin’s value has increased by about 20%, crossing the $30,000 mark for the first time since April. Shares of Coinbase Global, which is listed as the custodian for the BlackRock fund’s holdings, have also experienced significant growth during the same period.
Following BlackRock’s move, other traditional and crypto asset managers such as Fidelity Investments, Ark Investment Management, Invesco, WisdomTree, Bitwise Asset Management, and Valkyrie have reactivated or amended their applications for spot bitcoin ETFs. A spot bitcoin ETF, which tracks the actual price of bitcoin, would be a significant development for the industry as it would provide broader access to the cryptocurrency and enable investors to trade it as easily as stocks through a brokerage account.
The SEC has previously rejected similar funds since 2017, citing concerns of fraud and market manipulation. However, several ETFs based on bitcoin futures are already available in the market. BlackRock’s application was seen as having a better chance of approval due to the company’s reputation for successfully navigating regulatory processes.
Industry experts had anticipated that the SEC’s concerns could be addressed through agreements between the ETF issuers and exchanges to share surveillance of spot bitcoin trading platforms. BlackRock, Fidelity, and Ark included language about “surveillance-sharing agreements” with Nasdaq and Cboe in their filings. However, the SEC informed the exchanges that the filings lacked specifics about the spot bitcoin exchanges and the details of the surveillance arrangements.
As a result, Cboe has refiled applications for spot bitcoin ETFs on behalf of Fidelity, WisdomTree, VanEck, Invesco, and Ark Investment Management, specifying their intention to enter into surveillance-sharing agreements with Coinbase. Nasdaq, expected to file an application for BlackRock, is also likely to enter into such an agreement with Coinbase.
The refiling of applications resets the approval timeline, delaying the launch of the first spot bitcoin ETF by at least seven days. The SEC has 15 days to open the filings for public commentary after resubmission, and within that period, it can return the filing to the applicants by the seventh day. After the 15-day period, the SEC has up to 240 days to approve or reject the filing.
The SEC is currently engaged in a legal battle with Grayscale Investments, which sued the agency after its bid to convert the Grayscale Bitcoin Trust into a spot bitcoin offering was rejected. Grayscale expects a verdict in the fall.
Some analysts believe that the dominance of Binance, the largest cryptocurrency exchange, in the spot and futures trading market may hinder the approval of a spot bitcoin ETF. They argue that the SEC would require regulated and significant venues to replace Binance before approving such an ETF. In early June, the SEC sued Binance, alleging the operation of an illegal trading platform in the U.S., and also sued Coinbase for violating registration and oversight rules.