Why the SEC Might Approve Multiple Bitcoin ETFs Together

One of the most unusual aspects of the race to launch a spot bitcoin ETF is the prospect that the SEC could simultaneously approve multiple ETFs that essentially track the same commodity.  

As multiple firms—including BlackRock, Grayscale Investments and Bitwise Asset Management—jockey to launch exchange-traded funds that would track physically backed bitcoin, the Securities and Exchange Commission has let the applications pile up, extending the time it takes to deliberate on all of them. 

Yet after Grayscale’s unanimous and decisive Aug. 29 court victory against the SEC, investors are more bullish than ever that a so-called “spotcoin” could finally be a reality. While the SEC has allowed ETFs that track bitcoin futures contracts, it has thus far blocked applications for ETFs that track physically backed cryptocurrency because of concerns about investor protection.  

Even as firms prepare for a fierce battle for market share, they are advocating that the SEC approve all the ETFs at the same time. Cathie Wood, CEO of Ark Invest, and Matt Hougan, chief investment officer at Bitwise, have both expressed that the SEC will and should approve multiple spot bitcoin applications at the same time. 

“[Multiple approvals at once] would be great news for investors,” said Ric Edelman of Edelman Financial Services, noting that such a move “will reduce costs as different ETF providers seek to gain market share. It'll allow the marketplace to decide which products it favors most, and it is clearly in the consumer’s and investor’s best interest to have options.” 

First-Mover Advantage 

Why would competing firms advocate this approach? It all comes down to how the SEC handled the approval process for the first ETFs, funds that track bitcoin futures.  

When the SEC approved the first ProShares Bitcoin Strategy ETF (BITO) in October 2021, the fund got a long lasting and powerful first-mover advantage. The fund made a huge splash, hitting a trading volume of roughly $1 billion on its first day.  

The advantage has persisted to this day. BITO now has about $931 million in assets, while the Valkyrie Bitcoin Strategy ETF (BTF)–which launched a few days after BITO—has only $25 million in assets under management.  

Bryan Armour, an ETF analyst for Morningstar, explained that other instances of first-mover advantage have resulted in ETFs gaining “so much interest in liquidity and such an advantage that it's still really hard to supplant them.” 

If these products are approved at once, the firms will have a chance to win the market by differentiating themselves. BlackRock has the advantage of being a traditional finance brand, while firms such as Bitwise have the perk of being focused on cryptocurrency, according to Edelman.  

Firms may also try to distinguish themselves by going after different sectors of the market. “Some asset managers that are really plugged in with a new advisor may be able to use that advantage to get their funds in those advisors’ client portfolios,” explained Armour.  

Fees will likely be the most significant and important factor: The Grayscale Bitcoin Trust has a fee of 2%, a number that will have to be lowered to be competitive in the ETF market. The U.S. industry average is about 0.5%. Crypto ETFs have an average expense ratio of 0.98%, according to etf.com data.  

Contact Lucy Brewster at [email protected].