Investors of crypto are eagerly awaiting a ruling from the U.S. Securities and Exchange Commission that is expected to approve the trading of a bitcoin exchange-traded fund, more than a decade after such attempts were initially rejected. Thirteen companies have applied for a spot bitcoin ETF, including Grayscale Bitcoin Trust, Ark/21Shares Bitcoin Trust, Bitwise Bitcoin ETF Trust, BlackRock Bitcoin ETF Trust, VanEck Bitcoin Trust, WisdomTree Bitcoin Trust, Valkyrie Bitcoin Fund, Invesco Galaxy Bitcoin ETF, Fidelity Wise Origin Bitcoin Trust, Global X Bitcoin Trust, Hashdex Bitcoin ETF, Franklin Templeton Digital Holdings Trust, and Pando Asset Spot Bitcoin Trust.
The SEC's approval process for these applications consists of two parts. Firstly, a 19b-4 filing is required, which is a form used by exchanges to inform the SEC of a proposed rule change. This rule change is necessary under the Securities Exchange Act of 1934 since a spot bitcoin ETF is a new product, and the exchanges — NYSE, Nasdaq and Cboe — must provide rules to explain how the product will trade. The SEC must approve the rule changes before the product is introduced in the market. The SEC also needs to approve the S-1 filing of each company, which discloses the details about the specific security.
Since thirteen firms have filed for a bitcoin ETF, trading fees will be a key issue. For instance, Fidelity's Wise Origin Bitcoin Fund charges 39 basis points, while Invesco's Galaxy Bitcoin ETF has set its expense ratio at 59 basis points, with the first $5 billion in assets being fee waived. Ark/21Shares and Valkyrie will charge 80 basis points. Grayscale Bitcoin Trust charges 2%, but has promised to reduce the fee once its application to become a bitcoin ETF is approved.
The SEC is in the midst of facing regulatory battles against major crypto players. Last summer, the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC had previously approved a futures-based bitcoin product and was unable to explain why it refused to approve a spot-bitcoin product. The court stated that the futures and the spot market were "like" products, which means that if the SEC approved one, it would logically have to approve the other. Although bitcoin is deemed as a commodity, there is no such recognition for other cryptocurrencies, leaving the SEC to assess its control on the crypto industry through enforcement actions. The SEC is currently engaged in a legal dispute with Coinbase, while it has sued Binance and its founder Changpeng Zhao in the past.
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