Spot Bitcoin ETF Proposals Fall Short of Critical SEC Requirements, Likely Resulting in Rejection

The SEC is due to decide whether to approve or reject spot Bitcoin ETF applications from major firms such as Fidelity, WisdomTree Investments, and BlackRock, to name a few, some anticipating that the emergence of such a financial instrument could reshape innovation. The government oversight agency responsible for regulating the securities market and protecting investors is reportedly overwhelmed with much to do. According to Binance, many in the cryptocurrency space are split on how the U.S. regulatory will handle the investment vehicle, envisioning that the SEC will decline all proposals, therefore leading to a Bitcoin price correction.

The U.S. regulatory has until January 10 to decide whether to accept or decline the listing of shares of a spot Bitcoin ETF, which would track the underlying asset’s market price, providing investors exposure to the token without having to buy the cryptocurrency. Until now, analysts were confident that the SEC would authorize one spot cryptocurrency investment vehicle if not multiple ones. Spot Bitcoin ETF proposals could nevertheless be rejected by independent federal agency as they all fail to meet vital requirements. Cryptocurrency financial services firm Matrixport draws attention to the fact that SEC Chair Gary Gensler doesn’t embrace cryptocurrency in the U.S.

Multiple Spot Bitcoin ETF Issuers Have Made Changes to The Technical Details of Their Proposals

A spot ETF could lay the foundation for a boom in mass adoption, with regulatory clarity improving across numerous jurisdictions. The current chair of the SEC indicated in his comments in December 2023 that the cryptocurrency industry requires more stringent compliance to protect consumers and deter illicit activities. According to Gensler, from a political standpoint, there’s no logical basis for supporting a spot Bitcoin ETF that would validate Bitcoin as an alternative store of value. Even if Bitcoin had an impressive start to the new year, its rally came to an end amid rumors that the U.S. regulatory will reject all current applications. At the time of writing, the price of Bitcoin is $42,946.77, -4.95% in the last 24 hours.

Multiple spot Bitcoin ETF issuers have had to make changes to the technical details of their proposals, updating their filings to reflect authorized participants and enabling cash redemptions. Final updates will also include details about the sums of money issuers plan to invest in the new ETF, which are likely to involve small amounts. The SEC intends to meet with representatives of major exchanges to finalize comments on the applications submitted. Up until now, the SEC hasn’t approved a spot Bitcoin ETF for listing and trading on a U.S. exchange, irrespective of numerous applications from asset managers.

Bitcoin Has Been Pushing Higher Over the Past Months Thanks To Interest Shown in ETF Approval

The widely-anticipated approval of a spot Bitcoin ETF positively impacted the Bitcoin price, with volume and leverage picking up. Bitcoin rose above $45,000 for the first time in roughly two years, gaining 160% in 2023. Unfortunately, hope was downgraded by Matrixport’s prediction that ETFs won’t gain approval from the SEC by January 10, i.e., the decision deadline. If the market rumor is confirmed by the independent federal agency, Bitcoin could plummet to fresh lows, with $38,000 as the next stopping point. Just like other cryptocurrencies, Bitcoin is prone to big price swings that sometimes occur in seconds. Rumors, not to mention changes in investor optimism, can move prices.

In spite of the short-term volatility, Matrixport analyst Markus Thielen believes that Bitcoin has bullish potential for 2024, expecting its value to surpass $42,000 by the end of the year and offering a consoling or hopeful prospect to long-term investors amid regulatory uncertainty. The new Financial Accounting Standards Board rules will streamline accounting for Bitcoin and other cryptocurrencies, making the digital assets more attractive to corporate treasuries. The present global economic situation, notably in the U.S., might lead to Bitcoin emerging as a safe haven asset, especially if hyperinflation becomes an issue. A safe haven is expected to retain and even increase in value during economic and political uncertainty.

Not Everyone Is on Board with The Idea That Spot Bitcoin ETF Proposals Lack Critical Requirements

Spot Bitcoin ETF proposals are poised for rejection by the SEC. Naturally, there are skeptics, such as Alex Thorn, managing director and head of firmwide research at Galaxy Digital, who questions Matrixport’s statements, calling them nonsensical. As highlighted by Thorn, it’s not true that applications lack critical requirements, such as the fact that spot Bitcoin ETF issuers have surveillance-sharing agreements with exchanges. It seems that the SEC exploited a D.C. Circuit Court of Appeals ruling that said surveilling futures markets is enough because futures and spot prices are mathematically identical. Additionally, Thorn argues that spot Bitcoin ETF issuers are serious and seasoned, to say nothing of the fact that the market infrastructure has matured.

Galaxy Digital, in partnership with Invesco, has submitted a spot Bitcoin ETF application with the SEC, an investment product that comes with greater efficiencies via fees, liquidity, and price tracking. The U.S. regulatory must approve or reject the proposal in January with no possibility for further delays. A spot Bitcoin ETF would make it possible for investors to get exposure to cryptocurrency through various channels and platforms, including the ones they’re familiar with. Direct ownership, on the other hand, requires self-education to get started and comes with higher administrative costs. What is more, a spot Bitcoin ETF would offer better price transparency and discovery for market participants.

Last Words

Rendezvous between the SEC and representatives of major exchanges are driving confidence that the long-awaited spot Bitcoin ETF will finally be approved. Nevertheless, Matrixport analyst Markus Thielen expressed his perspective, asserting that the U.S. regulatory would reject all pending applications. Whether or not it’s true, only time will tell. Should proposals be denied this month, most likely, billions will liquidate across the cryptocurrency space, which could lead to Bitcoin’s price dropping, falling to $32,000 by the end of January. After having met with disapproval, Matrixport pointed out that their report was intended for their clients not the media.