SEC delaying spot bitcoin ETFs ‘not impossible,’ but unlikely: Balchunas

Bloomberg Intelligence analyst Eric Balchunas says a delay or rejection of spot bitcoin ETF apps would “overturn a lot”


Artwork by Crystal Le


A Matrixport report claiming that the US Securities and Exchange Commission will “reject” spot bitcoin ETFs shocked the crypto world on Wednesday, preceding an 8% drop in the price of bitcoin.

“From a political perspective, there is no reason to approve a bitcoin spot ETF that would legitimize bitcoin as an alternative store of value,” the report claimed. Bitcoin has since rebounded slightly to sit 5% down over the past day, now at $42,500.

Bloomberg Intelligence analyst Eric Balchunas told Blockworks that, without any sourcing, this report does not line up with what Bloomberg Intelligence has been reporting. 

“I’m not saying it’s impossible,” he said. “But it would overturn a lot.”

However, if there’s sourcing backing up the report, then it’s “a whole different ballgame.”

Read more: Bitcoin falls 8% on anti-ETF news, analysts remain confident

Matrixport didn’t immediately return requests for comment on the sourcing of the report. However, in a post on X, head of research Markus Thielen wrote, “My report is not based on issuer, nor on SEC insider comments. Obviously this is massively out of consensus.”

“And yes, after being the biggest bull all year…I turned bearish today but the arguments were ready.”

In his own post on X, Matrixport co-founder Jihan Wu said, “As intended, this recent report was prepared for Matrixport’s clients. However, its wide spread by the media was not planned by Matrixport and is beyond our control.”

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The Matrixport report claims that the current leadership panel that would vote on a spot bitcoin ETF approval is “dominated by Democrats.”

“SEC Chair Gensler is not embracing crypto in the US, and it might even be a very long shot to expect that he would vote to approve Bitcoin Spot ETFs,” head of research Markus Thielen wrote. “An ETF would certainly enable crypto overall to take off, and based on Gensler’s comments in December 2023, he still sees this industry in need of more stringent compliance.”

Read more: Fees, seeds and APs: What we know — and don’t know — about the planned bitcoin ETFs

The call, which comes ahead of the window of opportunity predicted by both Balchunas and fellow Bloomberg Intelligence analyst James Seyffart, would have made more sense in the fall, Balchunas added.

Cash creates a must for Bitcoin ETFs

The analysts believe there’s a 90% chance that the SEC approves some of the spot bitcoin ETFs in the days leading up to Jan. 10, which is Ark’s deadline. Ark initially filed for its own bitcoin spot ETF in 2021, but was rejected. It refiled late last year. 

“Is there some remote possibility that upper, upper echelons of government step in and pull the plug on [the spot bitcoin ETFs]? I guess. But it would overturn a lot. It would…overturn a lot of reporting, a lot of effort, a lot of work and a lot of signaling from the staff.”

Putting aside the amendments that the potential issuers have filed in recent weeks, “the big deal here is the Grayscale court ruling,” Balchunas said. Pairing that with the work that the SEC and the firms have put into the proposals makes the likelihood of rejection small in his opinion. 

Back in August, a panel of judges handed Grayscale a court win over its application to convert Graycale Bitcoin Trust (GBTC) to an ETF. While the judges only ordered the SEC to re-examine the application, the SEC notably didn’t file an appeal to the ruling.

Last week, Balchunas said that the “SEC is ready to approve spot bitcoin ETFs but only if they have clear language around cash-only creations and have a signed agreement with an authorized participant.”

BlackRock was the first of a handful of proposals on Friday to file amendments to their S-1s listing authorized participants.

“While we have seen frequent meetings between the ETF applicants and staff from the SEC, which resulted in the applicants refiling their applications, we believe all applications fall short of a critical requirement that must be met before the SEC approves. This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January,” the Matrixport report said.

However, Balchunas said that in a scenario where the SEC says that there’s still one issue holding up approval, then he would “call that more of a delay.”

“There was a scenario where, if Ark were to withdraw at the SEC’s request, then the next deadline is March,” he said. However, Balchunas pegs this delay situation “a long shot.”

Ark Invest CEO Cathie Wood said that the “probabilities” of an approval from the SEC “have gone up,” though she also cautioned that “this is the SEC and we never know what might happen along the way.”

Updated Jan. 3, 2023 at 11:29 am ET: Added comments from Markus Thielen and Jihan Wu.

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