The United States has “rejected” the Bitcoin ETF nine times. When will it be approved?

Recently, the U.S. Securities and Exchange Commission (SEC) has once again delayed its decision on whether to approve a Bitcoin ETF. For practitioners in the crypto industry, although they have been working to promote the approval of a Bitcoin ETF, this is not the first time that the SEC has rejected the launch of a Bitcoin ETF.

All along, the crypto industry has been disappointed with the SEC’s refusal to approve a bitcoin ETF, which they believe could make bitcoin truly a mainstream option for institutional investors.

For cryptocurrency enthusiasts and investors looking to profit from trading, tracking a Bitcoin ETF may be the best opportunity to do so.

US SEC again delays approval of Bitcoin ETF

Currently, many crypto products are listed in Europe, adding to the list of ETFs already available in Europe.

Earlier this year, the United States’ northern neighbor Canada allowed the first Bitcoin ETF to be listed on the Toronto Stock Exchange, and a steady stream of competing funds have followed suit.

As of June 27, the U.S. Securities and Exchange Commission (SEC) continues to be hesitant to approve a Bitcoin ETF in the United States.

Since Cameron and Tyler Winklevoss filed their application in 2013, a large number of companies in the United States have begun trying to apply for Bitcoin ETFs.

In January 2021, Valkyrie submitted an application to the U.S. Securities and Exchange Commission to list a Bitcoin ETF on the New York Stock Exchange. In late February, NYDIG, a subsidiary of Stone Ridge Assert Management, also applied for a Bitcoin ETF. In March 2021, FD Funds Management, a subsidiary of Fidelity Investments, submitted an application for a Bitcoin ETF called Wise Origin Bitcoin Trust, which will track Bitcoin through Fidelity's Bitcoin Index.

However, all of these were rejected by the SEC.

Approval of a bitcoin ETF in the United States has repeatedly encountered obstacles, with regulators expressing concerns about the volatility and speculative nature of cryptocurrencies.

When asked why the SEC rejected nine Bitcoin ETF applications, John Wang, head of the Neo ecosystem, believed that although Bitcoin is being tracked and regulated around the world, it is still a relatively alternative asset, and the inability to detect and lack of information transparency are reasons for rejection by the SEC.

John told Cointelegraph Chinese: “The main reason for the rejection of the Bitcoin ETF application should be the SEC’s uncertainty about whether Bitcoin can be manipulated and whether it can be regulated. Judging from the on-chain addresses, whales still control a relatively high proportion of Bitcoin; in addition, the frequent hacking incidents will make the SEC feel that Bitcoin is an asset with a higher risk.”

In fact, Bitcoin ETFs can provide more traditional investors with a Bitcoin investment method that they are accustomed to, which may bring more interest to the entire digital currency field.

A Bitcoin ETF listed on a major stock exchange could potentially lower barriers to entry and allow a wider range of investors to participate. Doing so would attract more capital into the Bitcoin ecosystem and help further secure Bitcoin’s status as a standard investment asset.

When Will the U.S. Approve Bitcoin ETF?

It is unclear when a Bitcoin ETF will appear on the market. The SEC was supposed to make a decision on VanEck’s application by April 29, but the regulator extended its deadline by another 45 days.

After the U.S. Securities and Exchange Commission extended VanEck’s Bitcoin ETF, the earliest it could be approved was June 13. However, last Wednesday, the SEC said it was seeking more opinions on whether to approve VanEck’s Bitcoin ETF.

Following the SEC’s extension, SEC Assistant Secretary J. Matthew DeLesDernier said:

“The SEC believes that it is appropriate to designate a longer period for taking action on the proposed rule change to allow sufficient time to consider the proposed rule change and the comments received.”

With the development of the digital asset market, Bitcoin has become the globally recognized "digital gold". Competition in the Bitcoin industry is becoming increasingly fierce, and this is also true in markets outside the United States, such as Canada, so it is only a matter of time before the United States approves the listing of a Bitcoin ETF. 7 O'Clock Capital believes that the specific time for the United States to approve a Bitcoin ETF may be this year or next year, and the overall situation still depends on the development of the encrypted digital asset market and the regulatory policy of the SEC.

He also noted:

“The U.S. Securities and Exchange Commission (SEC) will eventually approve a Bitcoin ETF. This is an inevitable trend. We all know that with the listing of Coinbase, the largest cryptocurrency exchange in the United States, and the gradual inclination of regulators to regulate cryptocurrencies, more and more people in the industry believe that the U.S. SEC will agree to launch a Bitcoin ETF. In addition, it is reported that financial giants such as Morgan Stanley, Fidelity, Skybridge, VanEck, Bitwise, and Invesco are all applying for a U.S. Bitcoin ETF, which can be said to be an accelerator for the launch of a U.S. Bitcoin ETF.”

Once the United States approves the launch of a Bitcoin ETF, it will provide the market with more friendly, safer innovative financial products, lower the threshold for retail investors and small and medium-sized net worth investors to enter the crypto market, and ultimately promote the accelerated development of the digital currency industry.

Grayscale Fund vs Bitcoin ETF

While there are currently no Bitcoin ETFs in the U.S., there are a number of publicly traded funds that invest money in Bitcoin.

Of course, most U.S. investors prefer to invest in domestically listed mutual funds. It is often easier to buy domestic funds than internationally listed alternatives (which can be cumbersome to buy, if you can buy them at all).

This is why U.S. investors tend to opt for unlisted U.S. alternatives to get something similar to a Bitcoin ETF.

Grayscale Bitcoin Trust (GBTC), the largest of these funds, trades over the counter and is quoted on OTCQX. GBTC is a closed-end fund that holds bitcoin in “cold storage,” or offline, and charges a 2% fee in exchange for sparing investors the hassle of creating digital wallets, keys, and cryptocurrency storage.

GBTC is not an ETF by any means, but it can be bought and sold through a U.S. brokerage account just like a U.S.-listed ETF. For many investors, GBTC has a unique feature - it often trades at premiums and discounts to its net asset value.

As a closed-end fund, GBTC only has a fixed number of shares (unlike an ETF, which can always create new shares). Trusts often trade at a premium to the net asset value of the underlying securities. This is particularly the case with GBTC, which has traded at twice the value of Bitcoin in the past.

Interestingly, GBTC has been trading at a discount recently. Regarding the negative premium and the sudden drop in market enthusiasm for GBTC, Steve, head of Waves China, told Cointelegraph Chinese:

“The recent drop in the popularity of the cryptocurrency market is mainly due to two factors. On the one hand, regulatory authorities in various countries have put forward increasingly stringent requirements and controls on the compliance of the cryptocurrency market, which has led to varying degrees of negative impact on cryptocurrency transactions, thereby reducing the enthusiasm of participants. Second, after several rounds of skyrocketing, the yield level of Bitcoin has begun to decline, and the money-making effect is no longer so obvious.”

However, for some U.S. investors, GBTC is preferable to many of the available international bitcoin ETFs, which can be difficult to access. U.S. prime brokers typically require special accounts to trade international securities, a category that includes bitcoin ETFs listed in Canada, Europe and elsewhere.

But for investors with these accounts, buying an international Bitcoin ETF is an option, and one that could provide a better experience than the unpredictable GBTC and its ilk.

Indeed, compared with trust products such as GBTC, the demand for Bitcoin ETF is higher. In an interview with Cointelegraph Chinese, Wilson, head of Avalanche Asia Pacific, said that the two are structurally different. ETF is a fund, while Grayscale is a trust. He also added:

“ETFs can be traded at any time, while the funds in Grayscale Trust have a lock-up period, which will lead to price differences, so ETFs are more flexible. ETFs meet the trading needs of various types of trading users; and Grayscale Trust can meet the needs of more long-term institutional investors.”

What is a Bitcoin ETF and how does it work?

An ETF is an investment vehicle that tracks the performance of a specific asset or group of assets. ETFs allow investors to diversify their investments without actually owning the assets. For individuals who simply want to watch their gains and losses, ETFs offer a simpler alternative to buying and selling individual assets.

Because many traditional ETFs target a larger basket of stocks that share common characteristics — a focus on sustainability, for example, or stocks that represent the video game industry and related businesses — they allow investors to easily diversify their holdings.

A Bitcoin ETF is an ETF that tracks the price of the world’s most popular digital currency. This allows investors to purchase ETFs without having to go through the complicated Bitcoin trading process.

However, cryptocurrency ETFs such as Bitcoin have certain advantages:

1. Convenience

Investing in a Bitcoin ETF provides leverage on the price of Bitcoin without having to understand how Bitcoin works, register with a cryptocurrency exchange, or take the risk of owning Bitcoin directly. For example, Bitcoin is stored in a wallet, and if an investor loses the password to the wallet, their Bitcoin is lost forever. Bitcoin ETFs simplify the process of investing in Bitcoin.

2. Diversification

ETFs can hold more than one asset. For example, a Bitcoin ETF could contain Bitcoin, Apple stock, Facebook stock, etc. - providing investors with the opportunity to reduce risk and diversify their portfolios. Likewise, by trading on a regulated market exchange, a Bitcoin ETF would provide investors with the opportunity to diversify their existing stock portfolios.

3. Tax efficiency

Given that Bitcoin is unregulated and decentralized, most pension funds around the world won’t touch cryptocurrencies. But that’s not the case with crypto ETFs.

This is because they are regulated by the SEC and the Financial Industry Regulatory Authority (FINRA), which provides financial institutions with credibility and security when investing in these ETFs. Cryptocurrency ETFs are also lower risk and offer better long-term returns, making them ideal for risk-averse investors.

On the other hand, a Bitcoin ETF traded on a traditional exchange would likely be regulated by the SEC and qualify for tax benefits.

The world's first regulated Bitcoin ETF - Canada's Purpose ETF did not see a significant decrease in holdings or demand after Bitcoin fell below $30,000, but instead increased its holdings of Bitcoin.

As Cointelegraph previously reported, starting from May 15, the Purpose ETF increased its holdings by an average of 86.15 BTC per day, and by June 24, a total of 3,446 BTC had been added. In total, Purpose now holds 21,114 BTC, worth approximately $720 million.