Original author: Sean Stein Smith
Original compilation: Luffy, Foresight News
The listing of a Bitcoin spot ETF has been news that many individual and institutional investors have been eagerly awaiting, but how exactly does this process work?
When news broke that BlackRock was filing for a spot Bitcoin ETF with the U.S. Securities and Exchange Commission (SEC), the cryptocurrency market was almost unanimous in thinking it was a good thing. While some may question traditional financial institutions entering the cryptocurrency space, the reality is that for cryptocurrencies to achieve mainstream adoption, these institutions will need to be involved.
Enthusiasm for the Bitcoin spot ETF application outstrips multiple other similar applications recently submitted. On October 16, as news broke that the BlackRock ETF was approved, Bitcoin briefly exceeded $30,000; when the news proved to be false, the price quickly fell back to its previous level. It’s clear that attitudes and sentiment around crypto assets have shifted towards institutional players, with BlackRock’s nearly 100% success rate of previous ETFs continuing to bring optimism to the market.
Thats all well and good, but investors may be wondering how the ETF process works, whos in charge, and why its so controversial.
How to Submit ETFs
Considering that Bitcoin ETFs have been rejected and delayed by the SEC multiple times, the way to file an ETF may seem like a confusing process, but this process has been successfully completed thousands of times, as summarized below. First, a potential ETF manager (called a sponsor) submits a plan to create an ETF to the SEC. This is where the Bitcoin ETF process is stalled, as the SEC keeps rejecting these proposals. In the case of recent filings, such as the one filed by BlackRock, it is likely that the sponsor and the authorized participant (usually a large institutional investor) are the same entity. Assuming the application proceeds from this point, authorized participants begin to acquire underlying assets, place those assets in a trust, and then use those assets to form creation units for the ETF.
This may sound like a complicated process, but there are nearly 3,000 ETFs in the United States with nearly $10 trillion in assets, which illustrates how unusual a firm rejection of a Bitcoin ETF application is.
How does a Bitcoin spot ETF differ from a trust?
There are some key differences between spot ETFs and trust products such as the Grayscale Bitcoin Trust. First, trust products generally cannot redeem the underlying assets, which explains why the price of each underlying asset (Bitcoin) may differ significantly from the trust product itself. In contrast, spot ETFs operate as open-end fund systems with greater flexibility to issue new shares, allowing them to better track movements in Bitcoin’s spot price. In addition, spot ETFs can also provide investors with better liquidity and tax treatment, further highlighting the appeal of these instruments to a wide range of investors.
Who approves ETFs?
ETFs must be approved by the SEC. The SEC has approved thousands of ETF products since their initial launch, which is why frustration at the lack of a Bitcoin spot ETF has been steadily growing. While other ETFs with relatively exotic underlying assets and business models have been approved, the SEC under Gary Gensler remains staunchly opposed to approving the creation of a spot Bitcoin ETF despite growing pressure from industry and lawmakers.
Why there’s no Bitcoin spot ETF
As for why there are no spot Bitcoin ETFs on the U.S. market yet, the answer may vary depending on who is asked. In official comments and statements, the SEC emphasized that because Bitcoin is a volatile asset, the crypto industry is rife with fraud and abuse, and other investor protection measures have not yet been introduced, the crypto market is not mature enough to provide investors with ETF products. the underlying assets.
On the other hand, many cryptocurrency proponents believe that the lack of spot ETF products is evidence of the anti-crypto and anti-Bitcoin stance that some U.S. policymakers appear to have embraced. Not surprisingly, the SEC has also proven unwilling to allow new cryptocurrencies or Bitcoin products to enter the market, as it has filed a series of enforcement actions and lawsuits against companies operating in the space.
As the potential for spot Bitcoin ETFs continues to grow and, frankly, looks higher than ever, investors and entrepreneurs should understand how the ETF process works, who is involved, and why the process is so important long time.
