A Bitcoin ETF Is Imminent. Here’s How It Happened.

Why it took suing the SEC and a years-long battle to get a Bitcoin ETF.

By: Zack Guzman

January 6, 2024

The Securities & Exchange Commission has fought tooth and nail to prevent a Bitcoin ETF. But try as they might, a Bitcoin ETF is coming.

After a years-long battle, it appears as if the SEC’s back is finally up against the wall and they are waving the white flag.

For a while now, the analysts at Bloomberg have said the odds of getting a Bitcoin ETF approved by next week were at 90%. And this week, updated filings from the near dozen applicants, including BlackRock, Grayscale, and Fidelity have been pouring in. Sources tell me all signs to multiple applicants winning approval to begin trading next week, but in the crypto game you typically learn to never trust things until they are final.

Ok, A Bitcoin ETF Is Coming. Who Cares?

Here’s the thing with Bitcoin — a lot of people in finance STILL don’t understand it. I don’t particularly blame them — they haven’t really had a reason to. But now, that’s very quickly about to change.

When a Bitcoin ETF is approved, suddenly many financial advisors who may not have been able to sell it to clients previously now will be able to. That’s because while you and I can buy Bitcoin on Coinbase, certain funds are restricted in what they can own. An ETF, or an exchange traded fund, finally allows them to finally get exposure to the biggest crypto.

According to a Bitwise survey conducted just a couple months ago, only 19% of advisors said they are able to buy crypto in client accounts.

Estimates range widely on how much money might flow into these Bitcoin ETFs — but suffice it to say, it’s probably in the tens of billions of dollars when all is said and done in 2024. Galaxy Digital estimates the number to be about $16 billion coming in to these ETFs in 2024 (a conservative drop in the bucket vs. the total ETF products in the US which is currently valued at around $7 trillion.)

So as advisors have a shiny new thing to sell to investors, more money theoretically should flow into scooping up Bitcoin. For these funds to work, dollars go in, and Bitcoin gets held by the custodians (interestingly Coinbase is the most popular business applicants are using — and that’s a big reason as to why their stock is up 100% over just the last two months.)

As the floodgates open and institutional money flows into Bitcoin, the thinking is that prices should theoretically rise. There is, after all, a cap on bitcoins in existence. And come this spring, the amount that are generated each year will once again be cut in half. Supply and demand dynamics are moving in the right direction!

Why Is This Happening Now?

As we’ve covered before, SEC Chair Gary Gensler is not a fan of crypto. It’s become somewhat political, and Democrats in Congress are not fans, either. But Bitcoin is unique. It’s seen as a commodity — which means it’s not actually solely under the SEC’s purview.

That presents a problem for the SEC, which desperately wants to prevent other crypto projects from thinking it’s OK to just create tokens and make promises to investors.

For years, the SEC blocked any attempts to create Bitcoin ETFs (and thus, allow even more institutional money to breathe more life into Bitcoin.)

Grayscale, a leading crypto investment company, created the Grayscale Bitcoin Trust, which functionally existed like an ETF (in that you could buy shares in dollars to gain exposure to bitcoin) but importantly was not an ETF (in that many institutions and advisors still couldn’t touch it.)

When Grayscale wanted to convert its Bitcoin Trust into an ETF in 2022, the SEC said no, and Grayscale sued. The SEC fought back. And then, amazingly, so did Grayscale.

The investment company not only won its appeal in court after arguing for more than a year, a three-judge panel of the D.C. Circuit Court of Appeals unanimously sided with Grayscale in August 2023 and called the SEC blocking the application “unlawful.” The SEC was so exposed by the ruling that Gensler didn’t even fight back. And he was now staring down a timeline of 240 days for the SEC to approve a separate ETF filing from Cathie Wood’s ARK Invest from May. (240 days from then, brings us to January 10, 2024.)

So, that raises the question — what’s the SEC to do? Just allow ARK Invest to go first and be the first ETF out of the gate? A lot of people might not think that’s fair (especially to Grayscale, considering they are the ones that forced the issue and took the SEC to court.) So, it’s far likelier to see all of the applicants approved at the same time to trade together come next week.

It’s also worth noting, other Commissioners at the SEC, have also called out Chair Gensler as treating Bitcoin ETF applicants unfairly — even before the court ruling. SEC Commissioner Hester Peirce told Coinage exactly that last summer.

Bitcoin 1. Gensler 0. Stay tuned, things are going to get interesting!

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