SEC Postpones Spot Bitcoin ETF Ruling, Affecting All Applicants, Including BlackRock and Fidelity
The U.S. Securities and Exchange Commission (SEC) has opted to postpone its decision regarding six spot bitcoin exchange-traded fund (ETF) applications. These applications come from prominent firms like BlackRock, WisdomTree, Invesco Galaxy, Wise Origin, VanEck, Bitwise, and Valkyrie Digital Assets. This extension means that the final decision deadline has been pushed to October. The impact of this news is quite noticeable in the bitcoin (BTC) market, as BTC had already experienced a decline earlier in the day. Following the announcement, BTC's value fell an additional 4.1% within the past 24 hours, settling at $26,100.
The SEC initiated its review of these ETF applications last month, encompassing candidates from both the cryptocurrency industry and traditional financial institutions. Notable candidates include Wise Origin (Fidelity), BlackRock, and Invesco Galaxy. These applicants are collectively working towards the introduction of the first-ever spot bitcoin ETF. Supporters of this move argue that it would open the door for greater retail investment in the bitcoin market, eliminating the complexities associated with setting up digital wallets or directly purchasing bitcoin.
The recent decisions by the SEC do not provide a definitive ruling but rather extend the existing comment periods. This extension allows for more comprehensive public input on these applications. The new review deadlines are as follows: October 17 for Wise Origin, Galaxy, and WisdomTree, and October 19 for Valkyrie. Bitwise's deadline is slightly earlier on October 16.
It's important to understand that the SEC has a maximum of 240 days from the commencement of the review process to make a final decision regarding these applications. Historically, SEC staff have used the entire range of comment and review periods to delay final determinations until the 240-day timeframe has been exhausted. Therefore, the recent agency filings to extend the deadlines were an expected procedural step.
A significant development earlier this week involved the D.C. Circuit Court of Appeals, which ruled that some of the SEC's arguments for rejecting bitcoin ETF applications appeared to be "arbitrary and capricious." This ruling followed an argument from Grayscale, asserting that the SEC lacked a solid basis for rejecting its proposal to transform the Grayscale Bitcoin Trust into an ETF. Notably, Grayscale, Digital Currency Group.
Judge Neomi Rao, who authored the unanimous court decision, emphasized that the SEC's rejection of the application contradicted its approval of two bitcoin futures ETFs. She pointed out that there was a "99.9% correlation" between the prices of spot and futures markets in the underlying bitcoin market. Consequently, the court concluded that Grayscale's proposed ETF was "materially similar" to the futures-based ETFs. This prompted the SEC to reconsider the application.
The SEC has previously employed similar arguments to dismiss other ETF applications, and the recent court ruling highlights potential inconsistencies in the SEC's decision-making process.