What Happened the Last Time the SEC Ruled on a Bitcoin ETF

The quest for a Bitcoin exchange-traded fund (ETF) has been a protracted journey, marked by highs and lows. 

In fact, those excited that a Bitcoin spot ETF approval could take place as soon as January may be shocked to know the initial attempt at a Bitcoin ETF dates back to July 2013 .

That’s when investors Cameron and Tyler Winklevoss, then best known for their controversial role in creating Facebook, first proposed the Winklevoss Bitcoin Trust, an exchange-traded vehicle that would open up Bitcoin to institutional investors. 

However, despite their forward-thinking proposal, the SEC officially rejected the proposal in March 2017, citing concerns about market surveillance and regulation. At the time, the Bitcoin price dropped some 30 percent on the news, declining from a high of around $1,400 to just over $900.

This rejection set the stage for a series of subsequent ETF rejections that have occurred ever since. 

The Early Attempts

Yet, even before the Winklevoss rejection, the quest for a Bitcoin ETF continued with other entities presenting their own proposals.

2013 also saw SolidX file a proposal for its Bitcoin fund shortly after the Winklevoss brothers. Despite later partnering with fund manager VanEck, the proposal for the VanEck SolidX Bitcoin Trust was withdrawn in 2019.

At the same time, Barry Silbert’s SecondMarket took a different path, launching a publicly traded trust that holds Bitcoin, but whose shares are traded on over-the-counter (OTC) markets. Investors can buy shares of GBTC through traditional brokerage accounts, and the value of each share is intended to track the price of Bitcoin. However, GBTC can trade at a premium or discount to the actual net asset value (NAV) of the Bitcoin it holds.

As far back as July 2017, Grayscale filed to convert the GBTC to an ETF. Despite becoming the largest and most popular Bitcoin fund, GBTC remains unlisted on major U.S. exchanges.

Over the past few years, amid turmoil at its parent company, discounts have turned as steep as 40%.

September 2017 witnessed ProShares applying for two Bitcoin ETFs, facing rejection in August 2018 along with seven other proposed Bitcoin ETFs.

December 2017 brought applications from Direxion and GraniteShares for respective Bitcoin ETFs, both of which were rejected in August 2018.

2019 To Today

In the wake of the 2017 bull market, there were a host of other hopefuls that attempted to launch a spot Bitcoin ETF.

By January 2019, Bitwise proposed the Bitwise Bitcoin ETF Trust, which was rejected by the SEC about nine months later. (It is among a set of new applicants seeking approval in January.)

Simultaneously, Wilshire Phoenix proposed a unique approach with the United States Bitcoin and Treasury Investment Trust, hoping to blend Bitcoin and U.S. Treasury securities. Yet, the SEC rejected this proposal in February 2020.

2019 saw Realty Shares ETF Trusts proposing a Bitcoin fund investing in Bitcoin futures contracts. The SEC compelled the withdrawal of the proposal just two days later.

2020 brought WisdomTree’s application for a commodity fund, planning to invest up to 5% of its assets in Bitcoin futures. 

Since then, traders have relied on stocks like MicroStrategy and Block to gain exposure to Bitcoin, with these companies, both of which offer Bitcoin services, providing buyers with exposure. 

Regulatory Shifts And Resignations

The regulatory landscape underwent changes in December 2020 when SEC Chair Jay Clayton stepped down from the SEC, and at first, there was optimism a change might come.

For instance, in 2021, President Joe Biden nominated Gary Gensler, the former chairman of the Commodity Futures Trading Commission, as Clayton’s replacement. The appointment was notable as Gensler had given lectures on Bitcoin during his tenure at MIT, and even promoted various cryptocurrencies. 

However, Gensler’s policy responses to the industry has arguably been even more draconian. 

During this transitional period, VanEck re-filed its application for a Bitcoin ETF in December 2020, marking the first filing post-Clayton. The SEC acknowledged the filing on March 15, providing a 45-day review window.

In 2021, Valkyrie filed a new application for the Valkyrie Bitcoin Fund to be listed on the NYSE. Subsequently, NYDIG filed for approval of its Bitcoin ETF in February 2021, coinciding with Bitcoin’s price hitting $50,000 for the first time.

March 2021 brought Fidelity’s filing for approval of the Wise Origin Bitcoin Trust, adding another dimension to the ongoing quest for a regulated Bitcoin ETF.

Flash forward to the end of 2023 and there are 13 applications from players including Fidelity and BlackRock. Most of the applicants have met with the SEC and made modifications to their applications, heightening the prospects of an approval.

Still, it remains anything but a sure bet. While Bloomberg analysts predict a 90% chance of approval, some fear the SEC may find creative ways to further delay the Bitcoin spot ETF’s debut.

If past fake news is any indication, markets will likely react to the decision, and volatility could be in store.

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