BlackRock, Fidelity, Invesco, WisdomTree or Ark. Those are the names of the financial companies that are currently waiting for an approval (or rejection) of their Bitcoin spot ETFs filed with the SEC.

While none of the previous Bitcoin spot ETFs were accepted, this time it really looks different. The sheer volume of assets that these institutions custody, as well as their importance in the financial world may pressure SEC to finally accept the proposals for spot ETFs, which is why it is crucial to understand what Bitcoin spot ETF is, how would it work and what companies are now trying to get their financial product to the market.

What is a Bitcoin ETF?

Exchange traded fund (ETF) is a financial product that tracks the value of its underlying asset, in this case Bitcoin. It is publicly-traded, usually on a traditional exchange, and its value rises or falls depending on the price of the underlying asset. ETFs usually serve a purpose of getting an exposure to either specific asset or an index, which groups more investment assets together. An ETF can thus increase the diversification of the portfolio.

In the case of Bitcoin ETF, it is necessary to emphasise that these would be Bitcoin SPOT ETF. There are some Bitcoin ETF products already on the market, including Bitcoin futures ETF or Bitcoin leveraged futures ETF. These would be described more in depth in the end.

Bitcoin spot ETF is a vehicle that would be tradeable on traditional exchanges, tracking the current price of Bitcoin, maintaining its volatility to both directions. There are several different reasons why so many people in the financial world as well as the cryptocurrency sector are waiting for Bitcoin spot ETFs.

First of all, a lot of retail investors as well as institutional investors find it rather complicated to invest in Bitcoin. For some, it might be too technically challenging, for others it might just be too risky or complex. A Bitcoin spot ETF would allow them to gain exposure to this asset class without having to study it or understand how to store it safely.

That is another advantage of the Bitcoin spot ETF. The fact that investors would not need to custody their coins at home with their hardware devices would open doors for many. It needs to be stated, however, that without self-custody, investors are losing one of the most important characteristics of Bitcoin, self-sovereignty and only hold an IOU with Bitcoin as an underlying asset. They would still need to trust the Bitcoin ETF providers, who would custody bitcoins for them, with investors simply holding shares just like with any other ETFs.

Another reason why Bitcoin spot ETFs are such a big deal is a fact that they would bring a needed clarity around regulations of the Bitcoin world and investing. This could encourage inflow of new investors, who still perceive regulatory uncertainty as a key weakness of Bitcoin.

All of this is currently very important as several institutions from the financial world have just filed Bitcoin spot ETFs. These are some of the largest companies in finance, which means that should they receive an approval, their products could accommodate needs of millions of investors and see billions of dollars invested in them. Which companies are we talking about?

1. BlackRock

BlackRock, the biggest asset manager in the world, has started a new wave of Bitcoin spot ETF fillings in the middle of June. On 15th of June, BlackRock officially filed an application with the U.S. Securities and Exchange Commission to launch its own iShares Bitcoin Trust. The filling stated the following:

“The Shares are intended to constitute a simple means of making an investment similar to an investment in bitcoin rather than by acquiring, holding and trading bitcoin directly on a peer-to-peer or other basis or via a digital asset exchange.”

Many believe that the filing of BlackRock actually stands a chance and has a 50% probability of being approved, unlike all the previous Bitcoin spot ETFs. So far, all the Bitcoin spot ETFs from different companies have been rejected, however, BlackRock has come up with a bit different proposal, which may grant it an approval from SEC.

The key difference is the fact that BlackRock plans to list its iShares Bitcoin Trust on Nasdaq exchange, which then would be expected to enter into a “surveillance-sharing agreement with an operator of a United States-based spot trading platform for bitcoin.”

Dave Weisberger, co-founder and a Chief Executive of algorithmic trading platform for digital asset industry, CoinRoutes, believes that the BlackRock’s ETF is likely to be approved. The same goes for Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, who pointed out that out of all the ETF filings by BlackRock, only one was rejected by the SEC. All the other ones (575), were approved, which is why he believes BlackRock actually has a 50-50 chance of being approved.  

Yet, a bit of “stain” on the approval might be the fact that Coinbase is listed as the custodian of Bitcoin for the BlackRock ETF. While Coinbase has been one of the most important global cryptocurrency exchanges in the world, only a few days before the filing, SEC sued Coinbase as well as Binance for allegedly running an unregistered securities exchange.

This may slow down the whole process or may lead to BlackRock to reconsider, with whom would the asset manager custody. It may be more complicated though, as BlackRock and Coinbase already have an existing strategic partnership which would bridge the BlackRocks’s institutional investment platform called Aladdin with Coinbase Prime.

2. WisdomTree

Encouraged by BlackRock, WisdomTree, global ETF and ETP sponsor and asset manager with AUM of about $87 billion, also filed for its own Bitcoin spot ETF. On June 21st WisdomTree filed with SEC to have its own Bitcoin spot ETF on CBOE BZX Exchange with the ticker “BTCW.”

Just like several other investment companies and asset managers, WisdomTree has filed for Bitcoin spot ETF before. And just like in all the other cases, it saw both of its previous applications rejected, one in December 2021 and the other in October 2022. In both cases, the SEC cited concerns connected to either fraud or market manipulation and speculation.

Now, with huge players entering the game, these concerns might slowly vanish. There are some concrete steps that the companies are making to ensure that they deliver a safe product for its investors, which is something WisdomTree is trying to do as well.

3. Invesco

On the same day as WisdomTree, Invesco filed for Bitcoin spot ETF as well. Only four hours after the official application of WisdomTree, Invesco decided to reactivate its application for the same product as the New York-based asset manager.

Invesco Galaxy Bitcoin ETF, a product that should be listed on CBOE BZX exchange, is now in the hands of the main U.S financial regulator. Invesco specified that the Bitcoin spot ETF uses professional custodians and other service providers, so that the investors would not have to rely on loosely regulated offshore vehicles.

This should tackle the main concerns of SEC and solve the issues connected with market manipulation and protect investors as well as their principal investments in Bitcoin.

4. ARK

One company, which can benefit from all of these huge financial institutions jumping on the “bitcoin spot ETF bandwagon” is Ark Investment Management. Ark, with Cathie Wood in charge, is ahead of BlackRock in the filing queue with the SEC. The financial regulator is set to give a ruling on the Ark’s filing by August 13th.  

The “ARK 21 Shares Bitcoin ETF” was recently amended to include the surveillance-sharing agreement, as was seen with BlackRock’ filing. Thanks to this, ARK might be in the best position to have its Bitcoin spot ETF approved.  

5. Fidelity

However, probably the second most important company that has joined the “Bitcoin spot ETF” race was Fidelity. The second biggest asset manager in the world, with assets worth well over $4 trillion, is yet again trying its luck with Bitcoin spot ETF filing with SEC. In the previous cases, Fidelity’s filing was rejected by the SEC. Fidelity is currently building on its previous Wise Origin Bitcoin Trust that would be listed on CBOE BZX Exchange.

The first filing by Fidelity was not successful. In 2021, Fidelity filed with SEC for Bitcoin spot ETF under the same name as now, but in 2022 it was rejected. Fidelity has also decided to include a “surveillance sharing agreement” to increase the chances of having the ETF approved. The name of the spot-based Bitcoin trading platform which was in the agreement is not known to the public.

The resurgence of Fidelity in the “Bitcoin spot ETF race” is not surprising, especially after BlackRock, WisdomTree as well as Invesco all filed for their own Bitcoin spot ETFs and ARK came out with the amendment to its previous filing.

Different companies filing for Bitcoin spot ETF, Source: twitter.com

Leveraged Bitcoin ETF and Bitcoin futures ETFs

With all this new information and filings by huge companies, the fact that there was actually a new Bitcoin ETF released in the past couple of days, might have easily been overlooked. The SEC has only recently allowed for the creation of a leveraged bitcoin futures fund, which was launched on 27th of June.

The Volatility Shares 2x Bitcoin Strategy ETF (BITX) was launched on Chicago Board Options (CBOE) BZX exchange. As was published in the filing for the BITX ETF, it “seeks investment results that correspond to two times (2x) the return of the Chicago Mercantile Exchange (CME) Bitcoin Futures Daily Roll Index.”

Before this, only ProShares Bitcoin Strategy ETF (BITO) was accepted by the SEC. BITO is a Bitcoin futures ETF, with the size of about $800 million. The fund has however delivered negative returns of about 40%, since the price of Bitcoin hit an ATH shortly after BITO was launched. Bitcoin is down about 55% from its peak since that time.

Nate Geraci, co-founder of the ETF Institute believes that the fact that futures as well as leveraged futures ETF have been approved before the spot ETFs makes no sense. He also stated:

“When we look back on the Bitcoin ETF saga in 5 or 10 years, this will be one of the most ridiculous aspects. A leverages 2x futures product launching before a straightforward spot ETF.”

Conclusion

The Bitcoin spot ETF saga might be coming to an end after more than a decade. While nothing is sure right now, it looks like the SEC is being bombarded by new filings from prominent financial institutions. It will definitely be difficult to reject all the applications without a significant argument. Yet, when it comes to Bitcoin spot ETF, nothing is certain until the moment when the very first one will be actually traded on an exchange.

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