- False reports of SEC’s approval of BlackRock’s Bitcoin ETF spurred a significant market reaction, highlighting pent-up demand.
- The SEC’s hesitance with spot-based Bitcoin ETFs is rooted in concerns of market manipulation and surveillance shortcomings.
Understanding the Bitcoin ETF Phenomenon
Anyone with internet access can trade Bitcoin, an exemplar of its open protocol design. So, the question arises: why the fervor for alternative methods, especially around spot market Bitcoin ETFs, when derivatives like futures-based ETFs and ETPs are available?
The BlackRock Ripple Effect
Rumors recently ignited, suggesting that BlackRock’s Bitcoin ETF had received the green light. Although incorrect, the market responded with a sharp increase, underlining the latent demand for such conventional financial tools. BlackRock’s application, still pending SEC review, is monumental not just because of its sheer size as a global asset manager, but also due to the validation it offers the entire crypto sector. CEO Larry Fink’s remarks about the appeal of assets not tied to any national government further amplified the buzz.
The fake bitcoin spot ETF approval news liquidated $29.5 million in BTC shorts in ~17 minutes.
Whichever intern at Cointelegraph tweeted it just
a) got fired, and
b) made a bag by going levered long
What a time to be alive 😭 pic.twitter.com/JAcg5MtsNh
— Joe Consorti ⚡ (@JoeConsorti) October 16, 2023
The push for a spot market Bitcoin ETF is primarily driven by the notion that several entities, from individuals to larger institutions, are eager to dip their toes into Bitcoin but find the existing avenues inaccessible or challenging. A Bitcoin ETF serves as an attractive conduit, possibly unlocking billions in investments.
Well played cointelegraph intern.
Over $1B in open interest closed out on fake ETF approval news. Someone, somewhere made bank… pic.twitter.com/tJYCoCy1ZE
— tedtalksmacro (@tedtalksmacro) October 16, 2023
But the fervor around Bitcoin ETFs might also stem from a sense of deprivation. The SEC has historically been reluctant, declining every spot-based Bitcoin ETF application since the Winklevoss twins’ attempt in 2013. Their primary concern revolves around potential market manipulation, given Bitcoin’s distribution across multiple exchanges and the absence of robust market surveillance systems.
This stance seemed unyielding until recently when the SEC didn’t counter an appeal against its refusal of Grayscale’s Bitcoin ETF application. The appeal’s outcome, in which the SEC’s rationale was deemed “arbitrary” and “capricious”, implies that the Grayscale application is very much alive. Following this, Bitcoin’s value surged, and analysts from Bloomberg posited a 90% likelihood of a Bitcoin ETF launching by January 10.
Yet, the intrigue doesn’t end there. Traditional financial powerhouses like Fidelity and VanEck are also queuing up, and given the SEC’s previously perceived crypto-averse attitude, speculations are rife that one of these entities might be the inaugural Bitcoin ETF. Some conjectures even suggest that SEC Chair Gary Gensler might have nudged BlackRock towards application.
Regardless of the entity that claims the first-mover advantage, the overarching question remains: Will the introduction of Bitcoin ETFs catalyze an influx of institutional interest and hefty investments in Bitcoin?