Can Bitcoin Spot ETF be Successfully Approved
This round of Bitcoin spot ETF applications has a high probability of being approved. The main reasons for this are the exceptionally high success rate of BlackRock's ETF applications and the inclusion of the Surveillance-Sharing Agreement (SSA).
- The Success Rate of BlackRock's ETF Application
BlackRock is renowned for its index-tracking fund products. Its flagship fund products (iShares) hold a market share of nearly 50% in the US ETF market. BlackRock has extensive successful experience in applying ETFs, with a success rate close to 100%, and the number of approvals is 575 out of 576 applications. The only failure was a jointly submitted actively managed ETF with Precidian Investments, and the reason for the rejection given by the SEC was the lack of transparency in profit.
- Surveillance-Sharing Agreement (SSA)
In this round of ETF applications, all 8 institutional applicants have included the Surveillance-Sharing Agreement (SSA) that was repeatedly mentioned in the reasons for the rejections of previous Bitcoin spot ETFs.
The Surveillance-Sharing Agreement (SSA) is an agreement between cryptocurrency exchanges and market regulatory bodies. This agreement allows both parties to share trading data and information for monitoring purposes. If suspicious trading data or information arises, it will be simultaneously shared with regulatory bodies, ETF issuers, and exchanges.
The SSA is commonly used in cases involving financial products like ETFs. It can enhance the effectiveness of financial market monitoring, assisting regulatory bodies in detecting market manipulation, fraudulent activities, and other improper trading practices.
The inclusion of SSA in the current application documents is highly likely to prompt the SEC to relax its stance on fraud prevention and market manipulation concerns. At the very least, the SEC can not provide the same rejection reasons as it did in 2021.
Which ETFs can be Successfully Approved
Looking at the application dates, except for Ark Invest, these 8 institutions have all chosen to submit their applications to the SEC at almost the same time. It's hard not to suspect whether they have received some information earlier, believing that the SEC may approve the issuance of Bitcoin spot ETFs this year. Of course, we can not verify whether there is indeed such information. However, the attitude conveyed in this process is undoubtedly positive.
Meanwhile, since the reply dates are very close to each other, it is likely that multiple ETFs will be approved or delayed simultaneously. The proposed rule change documents for these ETFs are quite similar and all include the Surveillance-Sharing Agreement (SSA). Therefore, the SEC has no reason to reject one and approve another. In other words, if BlackRock's Bitcoin spot ETF is approved, then there is a high probability that the ETF applications submitted by other institutions will be approved as well.
Approval Time Prediction
Based on the previous approval process of Bitcoin spot ETFs, the probability of getting approved in the first or second reply is very low. The applications for Bitcoin spot ETFs earlier normally tend to take the full 240 days before a decision is made, and then the decision is often a rejection. While the SEC cannot use the same reasons to reject spot ETF applications this time, considering its consistent stance towards the crypto market, it is likely to search for other reasons to delay the application responses. Ultimately, the decision might be made close to the final reply date.
On the other hand, the choice of the Bitcoin custodian within the ETF might also be a crucial factor influencing the SEC's decision. For a Bitcoin spot ETF, the custodian needs significant influence and experience in the crypto field, as well as recognition by the SEC (to act as a trading regulator). For instance, BlackRock explicitly stated in their ETF application that they would use Coinbase as the Bitcoin custodian. However, Coinbase's previous legal disputes with the SEC might influence the final decision of the application to some extent. While these legal disputes are not directly related to Bitcoin, they could result in delays in the approval process.
Therefore, we predict that the most likely time for this round of Bitcoin spot ETFs to be approved will occur 240 days after the announcement of the 19b-4 published in the Federal Register, which is the Final Reply Date.
Based on the publication date of the 19b-4 documents for each ETF application in the Federal Register, the potential approval times for the 8 institutional ETFs are as follows:
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