What Happened When the SEC Last Ruled on Bitcoin ETFs?

The quest for a Bitcoin exchange-traded fund (ETF) has been a long journey marked by highs and lows.

In fact, those excited that Bitcoin spot ETF approval could come in January may be shocked to learn that the first attempt at a Bitcoin ETF dates back to July 2013.

Investors Cameron and Tyler Winklevoss, then best known for their controversial role in the creation of Facebook, first proposed the Winklevoss Bitcoin Trust, an exchange-traded vehicle that would open up Bitcoin to institutional investors.

However, despite the forward-looking proposal, the SEC formally rejected the proposal in March 2017, citing market surveillance and regulatory concerns. At the time, the price of Bitcoin fell about 30% on the news, falling from a high of $1,400 to just over $900.

This rejection set off a series of subsequent ETF rejections.

early attempts

But even before Winklevoss’ rejection, the quest for a Bitcoin ETF continued, with other companies coming forward with their own proposals.

In 2013, shortly after the Winklevoss brothers, SolidX submitted a proposal for a Bitcoin fund. Despite later partnering with fund manager VanEck, the proposal for the VanEck SolidX Bitcoin Trust was withdrawn in 2019.

At the same time, Barry Silbert’s SecondMarket took a different route, starting a publicly traded trust that would hold Bitcoin but whose shares would be traded on over-the-counter (OTC) markets. Investors can purchase GBTC shares through traditional brokerage accounts, and the value of each share is intended to track the price of Bitcoin. However, GBTC can trade at a premium or discount to the actual net asset value (NAV) of the Bitcoin you hold.

By July 2017, Grayscale applied to convert GBTC into an ETF. Despite becoming the largest and most popular Bitcoin fund, GBTC is not yet listed on any major US exchange.

Discount rates have reached 40% amid turmoil at the parent company over the past few years.

In September 2017, ProShares applied for two Bitcoin ETFs, but in August 2018, they were rejected along with seven other Bitcoin ETFs.

Applications for respective Bitcoin ETFs were received from Direxion and GraniteShares in December 2017, but both applications were rejected in August 2018.

Until today in 2019

Since the 2017 bull market, there have been many other hopefuls attempting to launch a spot Bitcoin ETF.

By January 2019, Bitwise had proposed the Bitwise Bitcoin ETF Trust, but it was rejected by the SEC about nine months later. (One of a set of new applicants seeking approval in January.)

At the same time, Wilshire Phoenix has proposed a unique approach with its US Bitcoin and Treasury Investment Trust, hoping to blend Bitcoin and US Treasury securities. However, the SEC rejected this proposal in February 2020.

In 2019, Realty Shares ETF Trusts proposed a Bitcoin fund investing in Bitcoin futures contracts. The SEC forced the proposal to be withdrawn just two days later.

In 2020, WisdomTree filed a commodity fund that plans to invest up to 5% of its assets in Bitcoin futures.

Since then, traders have been relying on stocks like MicroStrategy and Block to gain exposure to Bitcoin, and both companies offer Bitcoin services to provide exposure to buyers.

Regulatory changes and resignations

SEC Chairman Jay Clayton’s resignation from the SEC in December 2020 marked a shift in the regulatory environment, and there was initially optimism that change would come.

For example, in 2021, President Joe Biden nominated former Commodity Futures Trading Commission Chairman Gary Gensler to replace Clayton. This appointment is notable because Gensler also lectured on Bitcoin and promoted various cryptocurrencies during his time at MIT.

But Gensler’s policy response to the industry was arguably much more stringent.

During this transition period, VanEck resubmitted his Bitcoin ETF application in December 2020, marking his first application since Clayton. The SEC acknowledged the filing on March 15 and provided a 45-day review period.

In 2021, Valkyrie filed a new application to list the Valkyrie Bitcoin Fund on the NYSE. NYDIG subsequently applied for Bitcoin ETF approval in February 2021, when the Bitcoin price reached $50,000 for the first time.

In March 2021, Fidelity applied for approval of the Wise Origin Bitcoin Trust, adding another dimension to its ongoing quest for a regulated Bitcoin ETF.

Projected by the end of 2023, there will be 13 applications from players including Fidelity and BlackRock. Most applicants meet with the SEC to revise their applications to increase their chances of approval.

Still, it’s not a sure bet. Bloomberg analysts expect a 90% chance of approval, but some worry the SEC may find creative ways to further delay the launch of a Bitcoin spot ETF.

If past fake news is any indication, markets are likely to react to these decisions and volatility could occur.