A recent court ruling against the US Securities and Exchange Commission (SEC) may lead to the approval of spot Bitcoin exchange-traded fund (ETF) applications. JP Morgan analysts, led by Nikolaos Panigirtzoglou, believe that after losing its court case against Grayscale Investments, the SEC will be forced to approve these ETF applications. The court ruled that the SEC’s rejection of Grayscale’s proposal to convert its bitcoin trust into an ETF was “arbitrary and capricious.” The regulatory body failed to provide proper reasoning for treating futures-based Bitcoin ETFs differently from spot-based Bitcoin ETFs. This court ruling may prompt the SEC to backtrack on previous approvals of futures-based ETFs to avoid being seen as inconsistent.
JP Morgan analysts note that if the SEC were to reject both Grayscale’s request to convert its trust and the spot Bitcoin ETF applications, it would be “very disruptive and embarrassing for the SEC.” Given these observations, the analysts predict that the SEC is unlikely to reject these applications and will likely approve multiple spot Bitcoin ETFs simultaneously. This delay in decision-making by the SEC suggests that it seeks to grant approval to all applicants at once, rather than providing a first-mover advantage to a single entity.
If spot Bitcoin ETFs are approved, it could result in increased competition in ETF fees. As a consequence, Grayscale may face pressure to lower its fees if its trust is converted into the world’s largest Bitcoin spot ETF. The approval of spot Bitcoin ETFs would create an environment where investors have more choices and could potentially benefit from lower fees.
Limited Impact on Crypto and Financial Industries
Despite the potential approval of spot Bitcoin ETFs, JP Morgan analysts do not believe that these products will have a significant impact on the overall crypto and financial industries. The research note points out that spot Bitcoin ETFs have already been available in Canada and Europe for some time but have failed to attract substantial investor interest. Additionally, recent outflows from gold ETFs did not benefit Bitcoin funds, including futures ETFs. Therefore, it is anticipated that ETFs launched in the US will likely perform similarly.
JP Morgan analysts expect the SEC to approve spot Bitcoin ETF applications following the court ruling against the regulatory body’s treatment of Grayscale’s proposal. The analysts also suggest that the SEC is unlikely to reject these applications to avoid disrupting its previous approvals of futures-based ETFs. The potential approval of spot Bitcoin ETFs could lead to increased competition and pressure on fees, particularly for firms like Grayscale. However, the analysts do not anticipate a significant impact on the overall crypto and financial industries, as similar products in other regions have not drawn substantial investor interest.