DTCC pours cold water, Bitcoin spot ETF still depends on SEC's approval

Author: Weilin, Hive Tech

Bitcoin surged from around $29,000 to $35,280, achieving a single-day increase of 21% on October 24, reaching its highest level since June of last year, as market optimism began to spread.

The news that triggered the market's volatility was that BlackRock's subsidiary iShares Bitcoin Trust had filed with the DTCC.

The DTCC is the U.S. securities depository and clearing company responsible for settling Nasdaq trades. Bloomberg ETF analyst Eric Balchunas tweeted that the stock code for the iShares Bitcoin Trust will be $IBTC, and this process is a key step in bringing a Bitcoin spot ETF to market.

Since 2020, a large number of U.S. financial institutions, represented by Grayscale, ProShares, and Bitwise, have entered the market to apply for Bitcoin spot ETFs, but the U.S. Securities and Exchange Commission (SEC) has had an ambiguous stance on this "exchange-traded fund," and no institution has successfully obtained approval in the past decade.

The filing of the iShares Bitcoin Trust with the DTCC has reignited hope, and crypto asset investors are looking forward to the approval of a Bitcoin spot ETF to turn the market from bearish to bullish.

On October 25, the DTCC seemed to pour cold water on the situation, with a spokesperson stating that appearing on the list only indicates that the agent bank has requested the ETF fund to provide a DTCC identifier, and being listed does not indicate that a specific ETF fund has received regulatory approval.

The highly anticipated Bitcoin spot ETF has returned to a waiting period of "watching the SEC's response."

DTCC Clarifies: Filing Does Not Mean Approval

After the iShares Bitcoin Trust appeared in the DTCC filing, a spokesperson for Bloomberg stated to the media that adding securities to its "eligibility file" and preparing for new potential ETF issuances is a "standard practice" for the DTCC. The names in the document are maintained by the DTCC subsidiary National Securities Clearing Corporation (NSCC), including active and potential ETF securities.

The iShares Bitcoin Trust has been filed with the DTCC

When the market viewed the "trust filing" as a sign that "a Bitcoin spot ETF will be launched," the DTCC spokesperson stated in an email, "Appearing on the list only indicates that the agent bank has requested the ETF fund to provide a DTCC identifier," and that the DTCC can only process the transaction after SEC approval, with an uncertain timeline. The DTCC also added that being listed does "not indicate that a specific ETF fund has completed the regulatory approval process."

Despite the DTCC's cold water, investors seem unfazed. As of the morning of October 26, Bitcoin remained above $34,000, reflecting the market's optimism regarding the Bitcoin spot ETF.

The impatient anticipation had already emerged earlier this month due to a false news report.

On the evening of October 16, the well-known cryptocurrency media Cointelegraph reported that the SEC had approved BlackRock's application for a Bitcoin spot ETF. The impact of this news caused Bitcoin's price to rise from under $28,000 to $30,000 on that day, with an intraday increase of over 10%.

Subsequently, Bitcoin's price quickly fell back to around $28,000, as Cointelegraph apologized, admitting that their report contained inaccurate information regarding BlackRock's Bitcoin ETF and that an internal investigation would be conducted.

However, after the incident, BlackRock CEO Larry Fink commented on the price increase caused by the controversy. During an appearance on Fox Business, he said, "This is an example of the pent-up demand in the cryptocurrency market. We are hearing from clients around the world about the demand for cryptocurrencies."

Earlier this month, the U.S. Court of Appeals for the D.C. Circuit criticized the SEC for rejecting Grayscale's application for a spot ETF. Interestingly, the SEC did not appeal this decision, which was interpreted by the market as "increasing the likelihood of Grayscale obtaining ETF approval."

Multiple Bitcoin spot ETF approval deadlines are in March 2024

According to the SEC's guidance rule document, the SEC has the authority to delay ETF applications for up to 240 days, and many applications currently have approval deadlines in March 2024.

Even so, the SEC has never approved any Bitcoin spot ETF proposals submitted by U.S. companies, only accepting the application for the ProShares Bitcoin Futures ETF, which is related to Bitcoin futures, in October 2021.

Why is the Bitcoin Spot ETF Highly Anticipated?

ETF stands for Exchange Traded Fund. A Bitcoin spot ETF is a fund established with the goal of tracking the price index of Bitcoin in a specific market.

Countries like Canada and Brazil have already approved the launch of Bitcoin spot ETFs. As a significant part of the global financial market, the U.S. has received numerous Bitcoin ETF applications from various institutions, managing a total of $17.7 trillion in assets.

The approval of Bitcoin ETFs is not without precedent, but it has only been for Bitcoin futures ETFs. On the morning of October 19, 2021, the ProShares Bitcoin Futures ETF officially listed on the NYSE Arca, with the ticker BITO. This came eight years after it submitted its application.

From the perspective of regulators, the safety of regulated Bitcoin futures ETFs is clearly higher than that of spot ETFs. Due to the existence of futures contracts, Bitcoin futures ETFs allow users to agree to buy and sell Bitcoin at a specific price on a specific date, and they do not require direct investment in the Bitcoin market.

However, supporters believe that the approval of a Bitcoin spot ETF would bring many benefits.

First, the SEC would increase the mainstream credibility of Bitcoin and related assets, enhancing their regulatory legitimacy as investable assets. Second, allowing investors to gain exposure to cryptocurrencies by purchasing stocks without needing a digital wallet or trading account could make market entry easier and attract a large number of traditional investors. Other reasons include that large institutions trading ETFs could help mitigate excessive volatility and manipulation in the cryptocurrency market, aiding in the maturation of the cryptocurrency market, among others.

Yet none of this has led the SEC to view Bitcoin spot ETFs differently, and the path for financial institutions to apply for spot ETFs has been arduous.

In July 2013, the Winklevoss brothers, co-founders of Gemini, were the first adventurers to apply for the Winklevoss Bitcoin Trust, which was ultimately rejected by the SEC. At that time, Bitcoin was still relatively niche and did not attract regulatory attention.

As the cryptocurrency market gradually developed to a trillion-dollar scale, many U.S. companies began attempting to apply for Bitcoin spot ETFs.

Starting in October 2020, Grayscale planned to apply to convert its BTC Trust into a spot ETF, facing various rejections from the SEC over the three years of continuous applications. A year ago, Grayscale decided to formally sue the SEC, initiating a back-and-forth legal battle that has lasted over a year.

Since 2023, news about "Bitcoin spot ETFs" has led to several rebounds in Bitcoin's price, including the actions of BlackRock and Fidelity resubmitting applications for spot Bitcoin ETFs in June of this year, when Bitcoin's trading price briefly surpassed $30,000.

Since 2022, the cryptocurrency market has struggled to recover after a series of events, including the collapse of LUNA, the bankruptcy of Three Arrows Capital, and the FTX crisis, with Bitcoin's price once falling below $16,000.

Against this backdrop, crypto asset investors are hoping that a Bitcoin spot ETF can bring in significant incremental funds and attract widespread participation from traditional investors.

According to predictions from data analysis company CryptoQuant, if the U.S. approves a spot Bitcoin ETF, the entire cryptocurrency market could grow by $1 trillion, with issuers putting approximately $155 billion into the Bitcoin market, which would account for nearly one-third of Bitcoin's current market value.

This time, after Bitcoin broke through the $34,000-$35,000 range, market sentiment has become optimistic again. Bloomberg ETF analyst Eric Balchunas stated, "BlackRock may have received a green light, or they are just predicting and preparing everything. We still believe that multiple ETFs will be launched together, rather than BlackRock being the only one to get approved first."

But whether it is one or multiple, the final decision-making power still lies with the SEC. Cautious analysts remind that in the progress of Bitcoin spot ETFs, the market will still experience fluctuations, and investors need to be vigilant about risks.