The Ten-Year Journey of Spot Bitcoin ETF Application

In the coming days, the SEC may finally approve an ETF that directly holds Bitcoin.

After a decade of efforts by fund issuers, this potential approval would represent a major step in the legitimization of the blockchain asset class.

Optimism about this possibility has grown in recent months, so let’s take a look at how the industry got to this stage.

Try to start

Cameron and Tyler Winklevoss filed for the Winklevoss Bitcoin Trust on July 1, 2013. At the time, the price of Bitcoin was around $100.

The fund, offered by sister company Math-Based Asset Services, is designed to hold BTC and store it with an initially unnamed custodian.

The 2013 filing states, “The sponsor believes the Trust is the first exchange-traded product designed to track the price of a digital-based asset such as Bitcoin.”

The U.S. Securities and Exchange Commission (SEC) denied Winklevoss’ application in 2017, noting that the lack of regulation in the Bitcoin market raised “concerns about potentially fraudulent or manipulative acts and practices.”

Other filings, denials

Others have made similar attempts to Winklevoss, but not all have made it to the denial stage.

Grayscale Investments, known for its Bitcoin Trust (GBTC), first filed for a bitcoin ETF in 2016 and “engaged in conversations with the SEC throughout much of 2017,” the company said in an SEC disclosure.

“Ultimately, we withdrew our application as we concluded that the regulatory environment for digital assets had not yet evolved to the point where such products could be successfully brought to market,” the company noted in the filing.

Crypto-focused asset manager Bitwise applied for a physically-backed Bitcoin ETF in 2019 but withdrew its application in January 2020 due to the SEC’s concerns. The company would re-launch its bid in October 2021 but was unsuccessful.

In fact, the securities regulator will continue to reject spot Bitcoin ETF applications for reasons similar to its ruling on the Winklevoss Bitcoin Trust.

In its November 2021 decision on VanEck’s proposed fund, the SEC said the Cboe BZX Exchange “has not determined that other means are adequate to protect against fraudulent and manipulative acts and practices.” The regulator added that the exchange where the proposed ETF would trade does not have a comprehensive supervisory-sharing agreement in place with “substantially sized regulated markets related to bitcoin.”

The ruling comes a month after the SEC allowed an ETF investing in bitcoin futures contracts to begin trading in October 2021.

Grayscale, VanEck and Bitwise are among the dozen or so issuers that have filed bitcoin ETF applications with the SEC, which has been publishing research for years to counter various bitcoin ETF applications.

BlackRock joins race as part of latest wave

Some fund issuers have not been deterred by the rejection. One asset management giant has even decided to try a spot Bitcoin ETF.

The latest wave of applications for Bitcoin ETF approval was launched in April 2023 after Ark Invest and 21Shares first teamed up to launch such a fund in 2021.

The SEC kept denying, denying, denying, and we just kept filing, filing, filing,” Ark Invest CEO Cathie Wood said during a webinar last month. “I’m very grateful to 21Shares for moving us in this direction.”

BlackRock raised eyebrows last June when it revealed its intention to launch a Bitcoin ETF. The fund giant manages more than $9 trillion in assets and has only had one proposed ETF rejected by the SEC.

Townsend Lansing, head of product at CoinShares, wrote in an August blog post that the SEC may receive additional “political push” to approve a spot bitcoin ETF given the involvement of traditional financial giants such as BlackRock.

Like BlackRock, financial services giant Fidelity has also filed a spot Bitcoin ETF application with U.S. securities regulators.

Grayscale sued the SEC and won

Some industry observers believe that Grayscale’s August court victory against the U.S. Securities and Exchange Commission (SEC) makes approval of a U.S. spot bitcoin ETF more likely. The SEC chose not to appeal the decision.

The regulator denied the company’s proposal to convert GBTC into an ETF in 2022. In response, Grayscale sued the SEC.

The judge in the case ruled that the SEC’s decision to block the conversion but approve a bitcoin futures ETF was “arbitrary and capricious.”

While the ruling does not force the SEC to approve GBTC’s change to an ETF, the regulator must reject such an action on different grounds. Grayscale continues to revise its application in preparation for a potential conversion.

"Pattern breakthrough" is obvious

21Shares President Ophelia Snyder said in November that the latest wave of bitcoin ETF applications saw a “pattern break” — issuers are providing more details about how the funds will operate.

“It’s really positive because, quite frankly, changes in behavior can actually lead to changes in outcomes, which is really exciting,” she said at the time.

Most recently, several fund groups last week named Jane Street, JPMorgan Securities and others as authorized participants for their planned bitcoin funds.

If such an ETF is approved, such an entity would be used to create and redeem fund units.

Bitcoin-centric advertising also began to surge.

Bitwise launched multiple ads last month starring actor Jonathan Goldsmith. Hashdex and VanEck followed with their own efforts — marking the initial stages of an expected marketing war if a spot bitcoin ETF is approved.