A crypto industry court victory in late August made it all but inevitable that a Bitcoin exchange-traded fund will eventually come to market. Where it gets complicated is how long that will take if the Securities and Exchange Commission decides to fight.
In a worst-case scenario, the SEC could delay the launch of Bitcoin ETFs for two years or longer, Compass Point Research & Trading analysts wrote in a note on Friday.
“SEC Chair Gary Gensler has been so firmly against any actions that help crypto that it’s hard to imagine him just rolling over and approving spot BTC ETF applications without a fight,” the analysts wrote, while also arguing that the court “leaves little room” for the SEC to ultimately win.
The SEC didn’t respond to a request for comment. On the day of the decision, the agency said it was reviewing the ruling to determine next steps.
In August, a panel of judges said that the SEC erred when it rejected a bid by Grayscale Investments to convert the
Grayscale Bitcoin Trust
(ticker: GBTC) into an ETF. The SEC had argued that there’s insufficient surveillance on trading platforms to detect fraud and manipulation. The court said the agency acted arbitrarily by rejecting the GBTC application on those grounds while also approving the issuance of ETFs that hold Bitcoin futures tied to the same underlying market.
But even with the decision, the SEC can still resist, the analysts wrote. For one, the agency has until Oct. 13 to ask for an “en banc” hearing to challenge the ruling in front of all the judges in the U.S. Court of Appeals for the D.C. Circuit.
If the agency loses at that level or if the court declines to take the case, the agency can appeal to the Supreme Court. If that avenue is a dead end, the SEC could attempt to reject GBTC’s application or those of other would-be Bitcoin ETF issuers like
BlackRock
(BLK) or Fidelity on different grounds, which would likely lead to more lawsuits.
Even putting aside the court battles, the agency typically has as long as 240 days to accept or reject the sorts of rule changes that the ETF issuers are seeking to allow their products to come to market.
All in all, the weapons at the SEC’s disposal could delay a Bitcoin ETF for more than two years, the analysts wrote.
Whether or not the SEC will ultimately go that route is another matter, and the agency will likely find it “politically untenable” to keep fighting, the analysts said.
The SEC faces a deadline of Jan. 10 to decide whether or not to allow the listing of a Bitcoin ETF issued by Cathie Wood’s ARK Investment Management and 21Shares. Decisions on applications by BlackRock and other issuers are due in the months after, but the agency could decide to approve all the applications at once to avoid the appearance of favoring one company over another.
The SEC’s decision due Oct.13 to request or eschew the en banc hearing will say a lot about whether the first Bitcoin ETF will take months or years.
Bitcoin has been trading in a narrow range around $25,500 as traders await the SEC’s next move.
Write to Joe Light at [email protected]
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