Spot Bitcoin ETF Odds Upped to 65%

Anticipation for a spot bitcoin ETF is heating up as experts are increasingly calling for approval this year. 

Bloomberg Intelligence raised its odds Wednesday to 65% that the SEC will approve applications for a spot bitcoin ETF this year. Previously, it gave the approval a 50% chance of happening.  

A slew of firms, including BlackRock Inc., VanEck Funds, 21Shares and ARK Investment Management, have eyes on launching a so-called spotcoin ETF—an exchange-traded fund that would track physical bitcoin. ARK and 21Shares are ahead in the Securities and Exchange Commission’s timeline because they filed in April, while other firms including BlackRock had to add more information to their June applications.  

Spot Bitcoin ETF Approval Odds Improve But Still Elusive

While a spotcoin ETF is still elusive, the SEC has approved ETFs that give investors exposure to bitcoin future contracts. 

Bloomberg analysts James Seyffart and Eric Balchunas outlined a few significant factors that raised the probability in an Aug. 2 report that the regulator will approve the ETFs. For example, SEC Chairman Gary Gensler has downplayed his role as of one of five decision-makers at the regulatory body, indicating that his track record of disdain for cryptocurrency shouldn’t indicate to investors the ETFs won’t be approved.  

Seyffart and Balchunas said in the report that the rhetorical shift might mean Gensler’s stance against crypto is “becoming politically untenable.”  

However, there is still regulatory muddle that could delay the SEC process, according to Morningstar’s ETF analyst Bryan Armour.  

“There has to be a lot of groundwork laid before [for the SEC] to be comfortable with some of the surveillance work being done,” he said in an interview, referencing the firm’s surveillance sharing agreement with Coinbase. “For this year, I would err on a lower probability [than 65%].”. 

Grayscale’s Spot Bitcoin ETF Lawsuit 

A possible path to approval is Grayscale’s ongoing lawsuit against the SEC on the grounds that the agency denied the conversion of Grayscale’s Bitcoin Trust (GBTC) to an ETF. The analysts believe Grayscale will prevail in court based on judges' questioning in the oral arguments.  

“If the SEC loses its case against Grayscale, as we expect, the path of least resistance would be a wave of simultaneous approvals for all spot bitcoin ETF applicants,” Balchunas and Seyffart wrote in the report.  

The analysts also point to the SEC’s loss to Cboe in the U.S. Court of Appeals for the D.C Circuit, which is the same court that the Grayscale lawsuit is moving through. The report claims the SEC can lose, as the court found issues with the agency’s logic. Two of the three judges who issued the decision on Cboe’s case are also on Grayscale’s. 

The GBTC discount, which is a measure that predicts investor sentiment about the passage of a spot bitcoin ETF, plummeted to only 28% on Aug. 2. In November, the discount was at a high of 43%. When the GBTC discount narrows, it indicates investors have more faith in that trust, suggesting investor sentiment is more confident about a conversion of the trust into an ETF.

Contact Lucy Brewster at [email protected]