What Could Be the Worst-Case Scenario for Spot Bitcoin ETFs in the US?

• A court victory for the crypto industry at the end of August indicated that the launch of a Bitcoin exchange-traded fund (ETF) is almost inevitable.
• In August, a panel of judges stated that the SEC was mistaken when it rejected Grayscale Investments’ proposal to convert Grayscale Bitcoin Trust (symbol: GBTC) into an ETF.
• Putting aside the court battles, the agency typically has the authority to accept or reject the kind of rule changes that ETF issuers seek to allow their products to come to market.

Market participants in the crypto space believe the SEC might approve spot Bitcoin ETFs by early 2024, but how long could this process be extended if the SEC continues to resist?

Could the SEC Be More Stubborn About Bitcoin ETFs?

A court victory for the crypto industry at the end of August indicated that the launch of a Bitcoin exchange-traded fund (ETF) is almost inevitable. What’s complicated is how long it might take if the Securities and Exchange Commission (SEC) decides to put up a fight.

In the worst-case scenario, the SEC could delay the launch of Bitcoin ETFs for two years or even longer, according to analysts at Compass Point Research & Trading. The analysts stated:

“SEC Chairman Gary Gensler was so resolute against any move supportive of crypto that it’s difficult to imagine he would approve spot BTC ETF applications without a fight.”

The SEC did not respond to a comment request. On the day of the decision, the agency said it was reviewing the decision to determine its next steps.

In August, a panel of judges stated that the SEC was mistaken when it rejected Grayscale Investments’ proposal to convert Grayscale Bitcoin Trust (symbol: GBTC) into an ETF. The SEC had argued that there was inadequate oversight of trading platforms to detect fraud and manipulation. The court said the agency acted arbitrarily in rejecting the GBTC application while approving ETFs holding the same underlying Bitcoin futures contracts.

However, according to analysts, the SEC could still resist. First, the agency has until October 13 to request an “en banc” hearing in front of all the judges in D.C. Circuits to challenge the decision.

If the agency loses at this level or if the court doesn’t take the case, the SEC can appeal to the Supreme Court. If that avenue doesn’t produce a result, the SEC might attempt to deny GBTC’s application or those of other Bitcoin ETF issuers like BlackRock (BLK) or Fidelity for different reasons, likely resulting in further litigation.

SEC Could Extend This Process for 2 More Years

Setting aside the courtroom battles, the agency generally has the authority to accept or reject the kind of rule changes that ETF issuers seek to allow their products to come to market, potentially delaying a Bitcoin ETF for more than two years.

In conclusion, the weapons that analysts believe the SEC could use might delay a Bitcoin ETF for over two years. Whether the agency ultimately chooses this path is another matter, and according to analysts, the agency would find it “politically unsustainable” to continue indefinitely.

The SEC has until January 10 to decide whether to permit the listing of a Bitcoin ETF issued by ARK Investment Management and 21Shares. Applications from BlackRock and other issuers could be decided in the following months, but the agency might choose to approve all applications simultaneously to avoid the appearance of favoring one company over another.

The SEC’s decision on whether to request an en banc hearing on October 13 will provide significant insight into how long it might take for the first Bitcoin ETF to come to market, with Bitcoin trading in a narrow range around $25,500 as investors await the SEC’s next move.