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Decision time looms for the first spot bitcoin ETF


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The Securities and Exchange Commission can give its approval or denial to VanEck Bitcoin ETF (the first of a series of spot bitcoin ETFs) until Nov. 14.

Although the SEC delayed decisions on applications twice previously, now they have to decide.

ETFs as well as the Bitcoin community remain skeptical.

Dave Nadig from ETF Trends’ research department told me, “I believe there is literally no chance for passage in the following three years.”

Where is all that crypto-optimism?

 That pessimism is born out of two developments: 

1) The SEC Chair Gary Gensler and other key regulators have stated that they have reservations about expanding crypto offerings. This is especially true if there are clear laws governing which agencies control the different crypto space, like crypto exchanges.

2) The recent infrastructure bill includes legislation that will impose burdensome reporting requirements for crypto.

When crypto investors first tasted cold water, it was earlier in the year. Gensler spoke at the Aspen Security Forum on Aug. 3The spokesman for the Cryptospace Investment Protection Committee (CME-traded bitcoin futures) noted that more protection is needed. “Given the importance of these protections, I look to the staff reviewing such filings,” he said.

Gensler quickly approved the bitcoin futures-based ETF. ProShares Bitcoin Strategy ETFWhere is it? began trading on Oct.19. The second ETF for bitcoin futures is the Valkyrie Bitcoin Strategy ETFThe commenced trading in October 22nd.

However, the futures market is regulated. The bitcoin and bitcoin exchanges don’t. Gensler expressed his disapproval of securities operating outside a “regulated” area.

There are no short Bitcoin futures ETFs

The SEC has approved the bitcoin futures ETFs. They claim they exist in the “regulated futures market.” Matt Tuttle discovered that they have zero interest in other products related to bitcoin.

Tuttle Capital’s manager, Tuttle Capital had submitted a short Bitcoin Futures ETF application. This would have allowed Tuttle to trade short bitcoin futures. Grayscale Bitcoin Trust

He was asked by the SEC to withdraw his application.

“The fundamental theme [from the SEC]Tuttle explained to me that the people don’t desire anything unusual, but they do not want levered, inverse, or leveraged bitcoin products.”

He’s also skeptical about approval of the “spot bitcoin ETF.”

He said that “my guess is it’ll be a while.” Gensler has not said anything that would indicate he’s becoming more comfortable using a pure-play ETF. We should therefore assume it will remain a gamble for the time being.

DeFi: The Infrastructure Bill: A Disaster for DeFi 

Many crypto-beards are concerned about what the future holds for the cryptocurrency industry. new infrastructure bill that recently passed CongressIt is. The measure is likely to be signed by President Joe Biden.

Two provisions are included in the bill that will affect crypto investors. First, anyone who has received a $10,000 digital asset or more must gather the information of the sender and complete a tax form detailing the transaction.

Brian Armstrong, CEO of Coinbase called it “a disaster if you understand it.” A criminal felony statute could be used to freeze healthy cryptocurrency behavior (such as DeFi).

The second definition of “broker” would be to “anyone who, for consideration), is responsible for providing services that effectuate transfers of digital assets on the behalf of another person.”  Will Wilkinson writes that this definition would apply to many individuals working in crypto. It could make them a broker and subject them to potentially disastrous reporting requirements for broker taxes.

Michelle Bond is a former SEC senior counsel and now the CEO of the Association for Digital Asset Markets. This group includes firms operating in the digital market. She stated that the new laws are a negative for crypto development.

Bond believes that there are still positive changes to come, even though the law has been signed by Biden. They won’t take effect until 2024 so the industry has plenty of time to organize.

She said, “It’s still not over,” to me. I believe this will be something that lasts a lot longer. She believes there will be legislative fixes next year, and the industry will be able comment on rulemaking provisions.     

The bitcoin ETF: Forget about it?

Crypto enthusiasts are imagining a future in which a bitcoin ETF is possible. 

Mark Palmer is an analyst for BTIG who told me, “I think pessimism should extend into 2020 and beyond about a Bitcoin ETF.”

Palmer stated that Gensler made clear that bitcoin ETFs would not have regulated entities backing them up. I don’t believe the market fully understands that fact.

He stated that “we need to have more clarity about the crypto space.” We believe that Congress may provide some clarity but it is unlikely. Another is the question of jurisdiction, how it should be regulated. [Commodity Futures Trading Commission]”

Although bitcoin is a product and is under control of the CFTC a bitcoin ETF could be a security which would fall under the SEC’s purview. Palmer thinks Gensler will not make any decisions without clear regulatory authority on other aspects of the crypto ecosystem like exchanges.

Palmer explained that Gensler is unsure of his authority and will have to be restrained until he clarifies.

Bottom line: It could be a long wait for a bitcoin ETF.