U.S. Green Light for Spot Bitcoin ETF? Bernstein Predicts High Chances

• Bernstein suggests that the U.S. SEC is likely to approve a spot Bitcoin ETF, despite its resistance thus far.
• The absence of a spot Bitcoin ETF has led to the rise of costlier, less liquid, and inefficient OTC products such as the Grayscale Bitcoin Trust.

Despite the U.S. Securities and Exchange Commission’s (SEC) ongoing reluctance to approve spot Bitcoin exchange-traded funds (ETFs), Bernstein, a leading brokerage firm, posits in its recent research report that the chances for such an approval are reasonably high.

The SEC’s hesitance towards spot Bitcoin ETFs lies in the concern that spot exchanges, like Coinbase, being outside its jurisdiction, may be vulnerable to price manipulations. In contrast, futures-based Bitcoin ETFs, even leverage-based ones, have seen approvals, given that futures pricing is derived from regulated exchanges such as CME.

A Changing Landscape for Bitcoin ETFs

The report, headed by Gautam Chhugani, points out that numerous applications for a spot Bitcoin ETF have been submitted to the SEC, including a recent filing by a Blackrock unit. This has instigated other asset managers, such as Invesco and Wisdom Tree, to either apply or reapply for their own Bitcoin ETF products.

Significantly, the report underscores the ongoing effort by Grayscale to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, currently under review by an appeals court. Bernstein analysts note that the court seemed skeptical about the notion that futures prices are not influenced by spot prices, making the SEC’s preference for futures-based ETFs over spot ETFs hard to justify.

The report also mentions an emerging industry proposition for a surveillance agreement between the spot exchange operator and a regulated exchange such as Nasdaq, in a bid to build more credibility.

The reluctance to sanction a spot Bitcoin ETF, according to Bernstein, has inadvertently fueled the growth of over-the-counter (OTC) products, such as the GBTC. These alternatives, however, are costlier, less liquid, and less efficient. The report concludes that the SEC might prefer a regulated Bitcoin ETF, spearheaded by mainstream Wall Street participants and surveilled by regulated exchanges, over dealing with a Grayscale OTC product filling the institutional gap.