The decade-long road to (possible) spot bitcoin ETF approval

In the coming days, the US Securities and Exchange Commission may finally greenlight ETFs that hold bitcoin directly.

This potential approval would represent a significant step toward legitimizing the blockchain asset class, following a decade-long effort by fund issuers.

As optimism around such a possibility has grown in recent months, let’s take a look at how we got to this stage.

The attempts begin

Cameron and Tyler Winklevoss filed on July 1, 2013 to launch the Winklevoss Bitcoin Trust. The price of bitcoin was roughly $100 at that time.

To be offered by the brothers’ company, Math-Based Asset Services, the fund was set to hold BTC and store them via an initially unnamed custodian.

“The sponsor believes the trust to be the first exchange-traded product that seeks to track the price of a digital math-based asset such as bitcoins,” the 2013 filing stated.

The SEC denied the Winklevoss’s attempt in 2017, noting that the lack of regulation in the bitcoin market raised “concerns about the potential for fraudulent or manipulative acts and practices.”

Other filings, denials

Others made similar attempts to the Winklevoss’s, yet not all initially made it to the rejection stage.

Grayscale Investments — known for its Bitcoin Trust (GBTC) — first submitted a bitcoin ETF application in 2016 and “spent the better part of 2017 in conversations with the SEC,” the company said in an SEC disclosure.

“Ultimately, we withdrew our application because we believed the regulatory environment for digital assets had not advanced to the point where such a product could successfully be brought to market,” the firm notes in the filing.

Crypto-focused asset manager Bitwise filed for a physically backed bitcoin ETF in 2019, but withdrew its request in January 2020 amid SEC concerns. It would launch another unsuccessful bid in October 2021.

Indeed, the securities regulator would continue denying spot bitcoin ETF applications on grounds similar to its ruling on the Winklevoss Bitcoin Trust.

In a November 2021 decision on a planned fund proposed by VanEck, the SEC said the Cboe BZX Exchange “has not established that other means to prevent fraudulent and manipulative acts and practices are sufficient.” The regulator added that the exchange on which the proposed ETF would trade did not have a comprehensive surveillance-sharing agreement “with a regulated market of significant size related to bitcoin.”

That ruling came a month after the SEC allowed ETFs that invest in bitcoin futures contracts to start trading in October 2021.

Grayscale, VanEck and Bitwise are among the more than a dozen issuers with a bitcoin ETF application currently in front of the SEC. The latter firm has continued to publish research addressing rebuttals to various bitcoin ETF filings over the years.

BlackRock enters race as part of latest wave

Some fund issuers remained undeterred by rejections. One asset management giant even decided to try its hand at a spot bitcoin ETF despite them.

Ark Invest and 21Shares kicked off the latest wave of bitcoin ETF approvals in April 2023 after the two firms first linked up to launch such a fund in 2021.

The SEC was denying, denying, denying and we just kept filing, filing, filing,” Ark Invest CEO Cathie Wood said during a webinar last month. “I’ll give 21Shares a lot of credit for pushing us in this direction.”

BlackRock then turned heads last June when it revealed its intention to launch a bitcoin ETF. The fund titan manages more than $9 trillion in assets and has only ever had one proposed ETF rejected by the SEC.

Townsend Lansing, head of product at CoinShares, wrote in an August blog post that there will likely be additional “political impetus” on the SEC to approve spot bitcoin ETFs, considering traditional finance giants like BlackRock are involved.

Like BlackRock, fellow financial services goliath Fidelity has a live spot bitcoin ETF application before the US securities regulator.

Grayscale sues SEC, then wins

Another milestone some industry watchers believe has made US spot bitcoin ETF approval more likely is Grayscale’s court victory against the SEC in August. The SEC opted not to appeal the decision.

The regulator had denied the firm’s proposed conversion of GBTC to an ETF in 2022. Grayscale sued the SEC in response.

Judges in the case ruled that the SEC’s decision to block this conversion, but approve bitcoin futures ETFs, was “arbitrary and capricious.”

While the ruling does not force the SEC to approve GBTC’s change to an ETF, the regulator must deny such an action on different grounds. Grayscale continues to amend its application as it prepares for a potential conversion.

‘Pattern break’ evident

21Shares President Ophelia Snyder said in November there has been a “pattern break” amid this latest wave of bitcoin ETF filings — adding issuers are offering more details about how the funds would operate.

“That’s really positive, because, very candidly, change in behavior might actually result in a change of outcome, and that’s really exciting,” she said at the time.

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

Such entities would be tapped to create and redeem fund shares if such ETFs are approved.

Aside from a steady flow of application amendments, bitcoin-focused ads are starting to proliferate.

Bitwise last month unveiled several spots featuring actor Jonathan Goldsmith. Hashdex and VanEck followed with its own efforts — marking the initial stages of an expected marketing war if and when spot bitcoin ETFs are approved.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.