(Article from Registered Funds Regulatory Update, April 2024)
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After denying more than twenty applications requesting the listing of spot bitcoin ETFs over the last decade, on January 10, 2024, the SEC approved eleven such applications authorizing the listing of the first U.S. ETFs that will hold bitcoin. The tide change began with Grayscale Investments, LLC filing a lawsuit against the SEC in June 2022 as a result of the SEC’s repeated denial of Grayscale’s bids to convert its Bitcoin Trust into a spot bitcoin ETF through a listing application. In August 2023, the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of Grayscale, holding that the SEC failed to adequately explain its reasoning in denying Grayscale’s listing application.
The decision was approved by a 3-2 SEC vote. As a result, U.S.-based institutional and retail investors will now be able to purchase securities that provide direct exposure to the spot bitcoin market without having to custody bitcoin themselves. Following the landmark decision, SEC Chair Gary Gensler announced that approval was “the most sustainable path forward,” while making clear that the SEC’s approval only applies to ETFs holding one non-security commodity—bitcoin—and should not be considered a signal of the SEC’s views regarding any other digital assets. He also noted that the SEC’s approval provides certain investor protections, such as (i) full, fair, and truthful disclosure about spot bitcoin ETFs in public registration statements and required periodic filings; (ii) the rules of the national securities exchanges that are designed to prevent fraud and manipulation; and (iii) the existing rules and standards of conduct, such as Reg BI, made applicable to the purchase and sale of the approved ETFs.
SEC Commissioner Hester M. Peirce concurred with the SEC’s decision stating that the SEC “squandered a decade of opportunities” to do its job and that spot bitcoin ETFs could have been approved years ago but for the SEC’s refusal to do so until a court called its “bluff.”
SEC Commissioner Mark Uyeda also concurred with the SEC’s decision but expressed his concerns with the underlying analytical approach, noting what he viewed as the SEC’s disparate treatment of spot bitcoin ETFs relative to other products and the invention of a “novel, unarticulated standard” to form the basis of approval.
SEC Commissioner Caroline Crenshaw, however, reiterated the SEC’s previous concerns about the spot bitcoin market’s potential for “fraud and manipulation,” as well as a concentration of ownership and lack of unified oversight in the bitcoin market. She stated that the SEC’s ruling is “unsound and ahistorical, and worse, they put us on a wayward path that could further sacrifice investor protection.”
The issuers of the ETFs approved by the SEC were Grayscale Investments, LLC, Bitwise Investment Advisers, LLC, Hashdex Asset Management, Ltd., iShares Delaware Trust Sponsor LLC, Valkyrie Digital Assets, LLC, 21Shares US LLC, Invesco Capital Management LLC, Van Eck Digital Assets, LLC, WisdomTree Digital Commodity Services, LLC, FD Funds Management LLC and Franklin Holdings, LLC.
Gary Gensler, SEC Chair, Statement on the Approval of Spot Bitcoin Exchange-Traded Products (Jan. 10, 2024), available at: https://www.sec.gov/news/statement/gensler-statement-spot-bitcoin-011023.
Caroline A. Crenshaw, SEC Commissioner, Statement Dissenting from Approval of Proposed Rule Changes to List and Trade Spot Bitcoin Exchange-Traded Products (Jan. 10, 2024), available at: https://www.sec.gov/news/statement/crenshaw-statement-spot-bitcoin-011023.
Hester M. Peirce, SEC Commissioner, Statement on Omnibus Approval Order for List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units (Jan. 10, 2024), available at: https://www.sec.gov/news/statement/peirce-statement-spot-bitcoin-011023.
Mark T. Uyeda, SEC Commissioner, Statement Regarding the Commission’s Approval of Proposed Rule Changes to List and Trade Shares of Spot Bitcoin Exchange-Traded Products (Jan 10, 2024), available at: https://www.sec.gov/news/statement/uyeda-statement-spot-bitcoin-011023.