The SEC has allowed bitcoin futures ETFs since October 2021, but argued that spot ETFs were vulnerable to exploitation by markets, routinely rejecting their applications.
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In 2021, SEC chair Gary Gensler testified to the Senate Banking Committee that a lack of regulatory oversight and surveillance in crypto markets had led to "concerns about the potential for fraud and manipulation" in the regulator.
However, Tim Bevan, CEO of ETC Group, said that following the ruling, it seemed inevitable that spot bitcoin ETFs will now come to the US.
"We do not believe the SEC will act as kingmaker and the most likely outcome is a block approval of applications that meet requirements, probably in Q1 2024," he said.
A variety of large asset managers have issued proposals to the SEC for a bitcoin spot ETF, such as Fidelity and Invesco, with BlackRock notably filing an application in June.
A Brazilian asset manager, Hashdex, attempted to circumvent the regulator's pushback on dedicated bitcoin products this week, by applying to gain approval for the first US spot bitcoin ETF, and convert its existing NYSE Arca exchange-listed $3mn Bitcoin Futures ETF into a spot Hashdex Bitcoin ETF.
Bevan noted the level of pent-up demand in the US, both from institutional and retail investors, was "significant", even as the SEC has stalled on their approval.
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The SEC will have 45 days to decide whether to appeal the decision, while Grayscale will have to file a new application for the ETF. However, there is no guarantee this new application will be approved, as the SEC could reject it on other grounds.
Greg Moritz, COO at crypto hedge fund AltTab Capital, argued that since products such as Grayscale's holdings have converted to ETFs in other commodity markets, "it makes no sense to treat crypto differently".
"Rules for financial markets need to be based on data, not arbitrary and capricious sentiment toward a legitimate and growing asset class," he contended.