SEC Further Delays Bitcoin Spot ETF Decision

Key Takeaways

  • The SEC has delayed its decision on two separate Bitcoin spot ETFs by 45 days.
  • The spot ETF proposals came from Bitwise and Grayscale and were supposed to be decided upon by tomorrow and Thursday, respectively.
  • The move should not come as a surprise to those who have kept up with the SEC’s moves.

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The Securities and Exchange Commission has delayed its decisions on two different Bitcoin spot exchange-traded funds. 

Patience: A Virtue?

The SEC has extended the period by which it can review and decide upon two separate Bitcoin spot ETF proposals, one by Bitwise and the other by Grayscale, the world’s largest digital currency manager with around $50 billion in assets under management. 

The Commission has extended the periods for both ETF proposals by 45 days. The Bitwise proposal was slated to be decided on by tomorrow, while the decision for Grayscale’s proposal was set for Dec. 23. Now, the SEC will either approve, disapprove, “or institute proceedings to determine whether to disapprove” by February 1, 2022 for Bitwise and by February 6, 2022 for Grayscale. 

Spot ETFs differ from the futures-based Bitcoin ETFs that have been approved in recent months, with the first gaining approval from the SEC in October and hitting record trading volume soon thereafter. In contrast to futures ETFs, spot ETFs provide investors with direct exposure to the underlying asset.

In explaining its decision for the delays, the SEC wrote that “it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the comments received.” 

In contrast to these delays, the SEC has outright rejected Bitcoin spot ETFs before. For example, it rejected VanEck’s application on Nov. 13. However, the Commission emphasized that it did not do so out of general disapproval for Bitcoin or blockchain technology. This clarification did not stop Grayscale from sending a letter this month to the SEC expressing its disapproval of the fact that it has approved Bitcoin futures ETFs but not Bitcoin spot ETFs.

Outside the U.S.already exist tradable Bitcoin spot ETFs, such as in Canada.

While the crypto markets lately have perhaps been rather in need of a major, positive catalyst, it seems unlikely that will come from a Bitcoin spot ETF approval anytime soon. 

Disclosure: At the time of writing, the author of this piece owned BTC and several other cryptocurrencies. 

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US Financial Stability Oversight Council identifies stablecoins and cryptos as threats to financial system

In an annual report published on Friday, the United States Financial Stability Oversight Council, or FSOC, voiced its concern over the adoption of stablecoins and other digital assets. 

Regarding stablecoins, the FSOC said consumer confidence could be undermined by factors such as illiquidity, lack of appropriate safeguards, opacity regarding redemption rights, and cyber attacks. “A run on stablecoins during strained market conditions may have the potential to amplify a shock to the economy and the financial system,” the report said.

The report also alerted to developments in decentralized finance, or DeFi, where the use of high leverage could trigger a fire sale when the price of the underlying asset declines. This would result in a cycle of margin calls and further price declines. In addition, the report outlined that “users of these services face risk of loss due to market value fluctuations, operational issues, and cybersecurity threats, among other risks.” In the report’s recommendations, the FSOC calls for a unified effort between federal and state authorities to enact legislation on stablecoins and digital currencies.

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Related: SEC delays decisions on Bitwise and Grayscale’s Bitcoin ETFs

Despite concerns surrounding the much-unregulated nature of the crypto industry, the report highlighted their innovative potential:

The development of digital assets and the use of associated distributed ledger technology may present the opportunity to promote innovation and further modernization of financial infrastructure. Regulatory attention and coordination are critically important in light of the quickly evolving market for digital assets.