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News/Analyst Insight: Is Europe's First Spot Bitcoin ETF Launch News Misguided?

Analyst Insight: Is Europe's First Spot Bitcoin ETF Launch News Misguided?

Aug 15 2023

9 months ago4 minutes read
A robot with a Bitcoin symbol on its core

The Dawn of Europe's First Spot Bitcoin ETF?

Written by Van

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In a chapter of crypto trading history, Jacobi Bitcoin ETF (BCOIN) hit the trading floors of the Euronext Amsterdam Exchange on August 15, 2023. Having received the green light from the Guernsey Financial Services Commission, BCOIN's launch marked the birth of the first spot Bitcoin ETF in Europe.

Amid this development and the impact it might have on crypto coin prices, Fidelity Digital Assets has been entrusted with the primary role of custodianship for the ETF.

Drawing on a unique feature of physical backing by Bitcoin, BCOIN opens up for investors the opportunity to gain exposure to Bitcoin, sidestepping direct ownership. It brings an innovative twist to the table - a focus on decarbonization.

Anchoring its operations on the principles of ESG (Environmental, Social, and Governance), BCOIN has embedded a renewable energy certificate (REC) within its framework to monitor the energy consumption of the colossal Bitcoin network.

The ETF stays compliant with SFDR (Sustainable Finance Disclosure Regulation) Article 8, demonstrating its commitment to transparency in sustainable investing. BCOIN proffers to its primarily institutional investors, access to real-time average Bitcoin prices via the FT Wilshire Bitcoin Blended Price Index.

The Larger Crypto Climate: Other Endeavors, Reactions, and Significant Players

The emergence of BCOIN on the scene, and its potential effect on crypto price, comes closely after the introduction of another innovative crypto-related product. Melanion Capital took the plunge with its Bitcoin Equities ETF launched in June 2023. This sequence of launches is stirring optimism in the crypto community.

Jacobi's CEO, Martin Bednall, vocalized his enthusiasm concerning Europe's progressive moves in the realm of crypto investments.

To build a more holistic view, some names from the Bitcoin domain that loom large in the background are technology giant MicroStrategy, holding a towering stash of over 140,000 BTC, and major Bitcoin mining frontrunners like Riot, Marathon Digital, and Hut8.

Clearing the Mist Around Europe's Spot Bitcoin ETF Misinformation 

False Interpretations and Corrections

Claims of launching Europe's first spot Bitcoin ETF sparked enthusiasm on social media and were broadcast by multiple crypto news outlets. However, industry specialists stepped in, providing clarity and correcting the misinformation. The crucial distinction they pointed out is that EU regulations disallow single-asset ETFs, such as gold or Bitcoin.

Further clarifying, the product, while marketed as Europe's first, is registered in Guernsey, not an EU member.

Patrick Hansen.webp
Source: Patrick Hansen/X

Over recent years, the European Union has seen an influx of Bitcoin Exchange Traded Products (ETPs). These financial instruments are structured as debt securities, precisely tracking Bitcoin's performance. This situation has led to a clarification regarding the difference between ETFs and ETPs.

An ETF, or Exchange Traded Fund, typically holds an array of assets, while ETP represents a broader category that may include single assets. Notably, in the European landscape, there's a well-established presence of spot Bitcoin ETPs, sometimes referred to as a "regulatory arbitrage type of technicality."

Insights from Industry Leaders

Industry figures also shared their expertise to dispel misconceptions. Patrick Hansen stressed the existence of Bitcoin ETPs in the EU. James Seyffart, a known ETF enthusiast, confirmed the numerous spot Bitcoin ETPs available and cautioned against mislabeling.

James Seyffart.webp
Source: James Seyffart/X

VanEck's Gabor Gurbacs also differentiated European ETFs from ETPs while criticizing the misleading claims. He presented valuable insights on physical Bitcoin ETPs operating in Europe.

Regulatory Context and Geographical Nuances

Guernsey is a self-governing dependency of the U.K., not part of the EU. This fact is crucial given the term "ETF" in the EU context can't represent undiversified products like our case—the so-called first spot Bitcoin ETF. 

Simultaneously, it's worth noting that the U.S. market is keeping a keen eye on these developments as it is still awaiting the launch of its spot Bitcoin ETF, even after the green light for futures-based products in 2021. 

Conclusively, the need for accurate reporting and understanding of financial instruments like BTC ETFs and ETPs is central to this emerging market. Misinformation can create misconceptions, highlighting the role of experts and accurate journalism in providing clarity.

Probing SEC Delays: Grayscale's Bitcoin ETF Application and SkyBridge's Standoff

A person looking at a graph showing the price of Bitcoin going up (1).webp

Grayscale Investments, a major player in the cryptocurrency world, continues in limbo as they await a crucial decision from the U.S. Securities and Exchange Commission (SEC) on their application to morph their Bitcoin Trust into a spot Bitcoin ETF. This review period has exceeded the standard 160-day norm.

To put into perspective, 30 out of the 32 cases from March 2021 to March 2022 (equating to 94%) were decided within the 160-day framework. Grayscale's case, since its oral arguments in March 2023, has already crossed this milestone.

A batch review is slated for Friday at 11 am, providing a glimmer of hope that an outcome could be declared by this coming September. August remains a prospective timeline, although there is no guarantee. The decision will no doubt shape the broader cryptocurrency spectrum.

The SEC's nod of approval would pave the path for increased retail and institutional participation. Conversely, rejection would represent a brief hiccup, requiring Grayscale to re-strategize and align further with the SEC's standards. 

The plot thickens when SkyBridge Capital comes into play. The hedge fund company strongly advocates for the SEC's prompt approval of the latest batch of spot Bitcoin ETFs, a standpoint counter to Grayscale's. The latter sued the SEC in 2021 for thwarting its Bitcoin Trust's assimilation into an ETF.

Rewinding to January 2022, even SkyBridge tasted the SEC's rejection while striving to inaugurate their own Bitcoin ETF.

Controversy unfolds as Grayscale rings alarm bells against the provision of an "unfairly discriminatory and prejudicial first-mover advantage". However, SkyBridge fiercely counters, openly supporting the swift sanctioning of applications. The discourse also involves other ETF proposals put forward by prominent firms like Valkyrie, VanEck, Fidelity, Invesco, and WisdomTree.

A breakthrough surfaced with Nasdaq and Coinbase introducing a surveillance-sharing agreement (SSA). Grayscale recognizes this step toward progress but doesn't vouch for SSAs as an absolute solution or 'silver bullet'. Disagreements persist with SkyBridge, which upholds that such agreements are pivotal in combating the SEC's market manipulation concerns.

All eyes remain on the developing narratives in the Bitcoin ETF landscape.

Unveiling Bernstein's Perspective: Spot Bitcoin ETF's Impact on Bitcoin's Market Cap 

A group of people in business attire looking at charts and having a discussion (1).webp

A Deep Dive into Bernstein's Analysis

Sanford C. Bernstein, an eminent global asset management and research firm, has recently unraveled an intriguing report. The analysis revolves around the potential repercussions a Bitcoin exchange-traded fund (ETF) could have on the cryptocurrency market.

The report imaginatively draws parallels between potential and current scenarios, fuelling further speculation on the upshot of a Bitcoin ETF approval in the U.S.

Potential Aftermath of a Bitcoin ETF

The Bernstein report hypothesizes a conservative adoption rate of 5% for a spot Bitcoin ETF among US retail and institutional investors, predicting a noticeable sway in cryptocurrency charts. The arithmetic from Bernstein's side suggests startling prospects.

If this adoption scenario unfolds, the spot Bitcoin ETF could claim around 10% of Bitcoin's market cap within three years, transforming the crypto-landscape dramatically.

Analyst Gautam Chhugani from Bernstein has also underscored in his revelations that the chances of a spot Bitcoin ETF being greenlit are augmenting, indicating an imminent shift in the crypto-ecosystem.

Furthermore, the deferment in the Securities and Exchange Commission's (SEC) decision regarding the ARK 21Shares Bitcoin ETF has elicited anticipation for similar judgments expected in September.

Probing the Pre-existing Crypto Products

Grayscale Bitcoin Trust, accounting for concerningly 4% of accessible Bitcoin, serves as a robust example of potential demand for a spot Bitcoin ETF as per Bernstein's report.

Unlike an ETF, this closed-end fund sways at a premium or markdown to net asset value, tallying noteworthy inflows from institutional and individual investors alike. This precedent reflects the existing hunger for such investment channels amongst investors.

It also suggests a positive reception and promising success that a future spot Bitcoin ETF could bask in.

SEC Sets Timeline for Bitcoin ETF Decision to Early 2024

A visual representation of an ETF, with symbols for Bitcoin inside it (1).webp

Ticking Clock for Bitcoin ETF Approval

The U.S. Securities and Exchange Commission (SEC), inching towards sanctioning a spot cryptocurrency exchange-traded fund (ETF), has set itself a deadline. With the authority to delay ETF applications for up to 240 days, the SEC's final countdown for ARK's Bitcoin ETF ends in January 2024.

Other applicants may have to wait until as late as March 2024 if their filings were made in July 2023.

BlackRock, the world's largest asset management firm, rekindled interest by joining the Bitcoin ETF filings in June. BlackRock's "surveillance-sharing agreement" with Coinbase further indicates the SEC's potential embracement of such conditions. Other companies in the race include ARK Invest, Bitwise Asset Management, VanEck, WisdomTree, Invesco, Galaxy Digital, Fidelity, and Valkyrie.

Evaluating Challenges for Spot Crypto ETFs

Despite edges towards granting ETFS, the SEC holds a record of withholding approval for spot Bitcoin ETF proposals in the U.S. From October 2021, the regulator started entertaining investment vehicles tied to BTC futures. 

Spot crypto ETFs, though inviting, may face roadblocks. These instruments could encompass Bitcoin held within a fund, calling for direct investment. Describing the SEC as "cooperative," Stuart Barton, Volatility Shares' co-founder, disclosed intriguing discussions with the regulator.

Barton even speculated that smaller firms could potentially gain favor with the SEC concerning spot crypto ETF offerings.

Navigating the Regulatory Landscape

Major asset management firms with spot Bitcoin ETF applications are under the SEC's review, having the maximum 240-day extension advantage. Nevertheless, the SEC exhibits hesitancy, possibly due to U.S. cryptocurrency market attributes, with persistent enforcement cases against Coinbase, Binance, and Ripple.

U.S. legislative bodies are mulling over law drafts to sharpen the regulatory roles of the SEC and Commodity Futures Trading Commission (CFTC) in monitoring digital assets. Industry experts estimate a 65% chance of a U.S spot Bitcoin ETF getting the green light, inspired partially by BlackRock's application.

Cathie Wood and Grayscale clarify that the SEC might opt for multiple ETF approvals at once, ensuring no firm secures an unfair advantage. Barton suggests that compromises will be necessary, with expectations of increased adaptability from the cryptocurrency sector.

Frequently Asked Questions

1. What is a Spot Bitcoin ETF, and how does it work?

A Spot Bitcoin ETF allows investors to invest in Bitcoin without owning it directly. This fund purchases and holds actual Bitcoins, with the value of the ETF's shares closely mirroring the real-time price of Bitcoin in the spot market.

2. What is the significance of a spot Bitcoin ETF?

A spot Bitcoin ETF provides a more accessible and regulated vehicle for investing in Bitcoin, typically aimed at institutional investors. It allows investors to gain exposure to Bitcoin's price movements without needing to manage the storage and security complexities of owning Bitcoin directly.

3. How does a spot Bitcoin ETF differ from a Bitcoin ETP?

Exchange Traded Funds (ETF) and Exchange Traded Products (ETP) are both types of investment funds listed on an exchange. While a Bitcoin ETF holds multiple assets to diversify risk, a Bitcoin ETP often traces the price of a single commodity, in this case, Bitcoin.

4. What role does the SEC play in a spot Bitcoin ETF?

The SEC, or the U.S. Securities and Exchange Commission, is the regulatory body that approves or disapproves the launch of ETFs. A spot Bitcoin ETF must adhere to SEC regulations, and in the case of any disputes, the SEC's decision stands final.

5. What impact could a Bitcoin ETF have on the Bitcoin market cap?

The introduction of a Bitcoin ETF could substantially increase the demand for Bitcoin, potentially attracting a wider range of retail and institutional investors. As analyzed by Sanford C. Bernstein, a Bitcoin ETF could account for up to 10% of Bitcoin's market cap within three years, under a conservative adoption scenario.

Final Thoughts

In conclusion, the cryptocurrency investment universe is experiencing an exciting phase with the unfolding narratives around spot Bitcoin ETFs and spot Bitcoin ETPs amid regulatory advancements and resistance. Entrepreneurs, investors, regulators, and consumers are eager to witness how the interplay between these factors eventually shapes the broader cryptocurrency ecosystem.

From the potential launch of the first spot Bitcoin ETF to the corrections made in misinformation and delays, the road ahead is full of dynamic possibilities that could redefine the cryptocurrency market as we know it.

This article has been refined and enhanced by ChatGPT.

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