The U.S. Securities and Exchange Commission’s (SEC) stance on spot bitcoin (BTC) exchange-traded-funds (ETF) is a difficult one to hold, according to a research report from brokerage firm Bernstein on Monday. The SEC has already allowed futures-based bitcoin ETFs and recently approved leverage-based futures ETFs, based on the premise that futures pricing comes from a regulated exchange like the CME. However, the SEC believes that a bitcoin spot ETF would not be dependable because spot exchanges (e.g. Coinbase) are not under its regulation, and thus spot prices are not reliable and prone to manipulation.
The report flagged Grayscale’s bid to convert its Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF), currently before an appeals court. The analysts wrote that the court did not sound convinced that the futures price is not derived from the spot price, and thus to allow a futures-based ETF and not allow spot sounds like a difficult pill to swallow for the courts. The industry has also suggested a surveillance agreement between the spot exchange operator and a regulated exchange such as Nasdaq.
The lack of a bitcoin spot ETF leads to the growth of over-the-counter products like the Grayscale Bitcoin Trust (GBTC), which are more expensive, illiquid, and inefficient, the broker said. The report said that the SEC would rather bring in a regulated bitcoin ETF led by more mainstream Wall Street participants and with surveillance from existing regulated exchanges, than having to deal with a Grayscale OTC product filling the institutional gap.
The probability for approval of a spot bitcoin ETF is fairly high, according to Bernstein.