2 Risks to Consider for Bitcoin ETFs: SEC Rejection and Competition from Other Funds
A circuit court in Washington D.C. has recently ordered the Securities and Exchange Commission (SEC) to revisit its rejection of a Bitcoin exchange-traded fund (ETF) application made by Grayscale, a crypto hedge fund.
However, even if the SEC does approve a Bitcoin ETF, there are still potential risks that could impact its success. These risks include the possibility of the SEC finding new reasons to reject the application, as well as competition from other ETFs.
Potential Impact of SEC Rejection or Delay
Many investors and insiders within the crypto industry believe that the price of Bitcoin and other cryptocurrencies will surge if the SEC approves an ETF for BTC. Nicholas Scherling, the founder and CEO of DeCryptoFi, stated that it would “definitely pump quickly” in an interview with TheStreet. On the other hand, if the SEC rejects a Bitcoin ETF, it could lead to a significant drop in the price of Bitcoin, as warned by Nate Geraci, the president of ETF Store and co-founder of ETF Institute.
If spot bitcoin ETF not approved in January, might be one of bigger rug pulls in crypto history…
Not my base case, but can’t entirely rule out given history here (which is why I said *close* to 100%).
That said, sticking w/ my original pre-Grayscale court victory prediction. https://t.co/zhlLDgMlzw
— Nate Geraci (@NateGeraci) December 18, 2023
The SEC has shown resistance to approving a Bitcoin ETF, particularly those structured as “in-kind” ETFs, and has instead favored “cash create” ETFs. The SEC’s preferred structure may result in increased tax liabilities for issuers and potentially higher fees for clients. The ongoing battle between funds and regulators could potentially delay the launch of a Bitcoin ETF beyond January.
Potential Impact of a Spot Bitcoin ETF on Crypto Exchanges
Eric Balchunas, a senior Bloomberg ETF analyst, jokingly commented on the low fee of 0.01% for ETF trading on a Sunday. Nate Geraci responded, suggesting that the launch of a Bitcoin ETF could be detrimental to crypto exchanges.
Let’s check this 6 months after spot bitcoin ETFs launch…
Bet these tighten up pretty substantially. pic.twitter.com/aE6bMaALgV
— Nate Geraci (@NateGeraci) December 18, 2023
By contrast, popular crypto exchanges like Coinbase charge trading fees as high as 0.6%. Balchunas believes that a crypto ETF would eliminate these high trading fees for the original cryptocurrency, ultimately benefiting investors financially.
