SEC Approval of Spot Bitcoin ETF Likely: Bernstein

The US Securities and Exchange Commission (SEC) position on Bitcoin (BTC) exchange-traded funds (ETFs) is hard to hold and the probability of approval is rather high, brokerage firm Bernstein said in a research report on Monday.

Bernstein points out that the SEC has already authorized futures-based Bitcoin ETFs, and recently approved leveraged ETFs on the basis that futures prices come from a regulated exchange like the Chicago Mercantile Exchange.

According to analysts led by Gautam Chhugani, the SEC believes that a bitcoin spot ETF will not be reliable because “spot exchanges (such as Coinbase) are not regulated, and therefore spot prices are not reliable and prone to manipulation.”

The regulator has not yet approved a Bitcoin ETF despite receiving many applications. A unit of Blackrock filed the paperwork last month to form a bitcoin spot ETF. This prompted other asset managers such as Invesco and Wisdom tree To apply or re-apply for a Bitcoin ETF product.

The report cited Grayscale’s attempt to convert the Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF), which is currently before the Court of Appeal.

“The court did not seem convinced that the futures price is not being derived from the spot rate, thus allowing futures-based ETFs and not allowing spot votes like a hard-to-swallow pill for the courts,” the analysts wrote.

Moreover, the industry has now also proposed a monitoring agreement between the spot exchange operator and a regulated exchange such as Nasdaq, the report said.

The broker said the lack of a bitcoin spot ETF is driving the growth of over-the-counter products like the Grayscale Bitcoin Trust (GBTC), which are more expensive, illiquid and inefficient. Grayscale is owned by CoinDesk’s parent company, Digital Currency Group (DCG).

“The SEC would prefer to bring in a regulated bitcoin ETF led by more major Wall Street participants and monitored by existing regulated exchanges, rather than having to deal with Grayscale’s OTC product filling the institutional gap,” the report said.