June 30, 2023
Greg Cipolaro

Research Weekly - Another Race is on For a Spot ETF


  • With BlackRock kicking off a new race for a spot bitcoin ETF, we look at the next steps ahead in the process.
  • There are no response deadlines yet for the recent filings, as no proposed rule changes by exchanges have hit the Federal Register yet.
  • While BlackRock approval is far from assured, its filing has had knock-on effects for other financial products, like the Grayscale Bitcoin Trust and the Ark 21Shares Bitcoin ETF application.

An Unstoppable Force Meets an Immovable Object

BlackRock Tries for a Spot Bitcoin ETF

On June 15th, BlackRock, the premier sponsor of exchange-traded funds (ETFs) with $2.4T under management under ETF products, started the process for the approval of a spot bitcoin ETF, the iShares Bitcoin Trust. BlackRock filed a registration statement (S-1) for the fund with the SEC, and The Nasdaq Stock Market LLC (Nasdaq) filed a 19b-4, the document requesting a rule change with the SEC to list and trade the ETF. To list new types of ETFs, exchanges require exemptive relief from the SEC. In all cases of a spot bitcoin ETFs thus far, the SEC has denied exemptive relief, preventing them from being made available to investors.

The filing is notable because of BlackRock’s near-perfect record in getting ETFs approved (255 for 256), which is itself coming up against a perfect record, the SEC’s denial of spot bitcoin ETFs (28 for 28). Investors took the filing by the industry giant as a positive sign, sending bitcoin up over 20% in the wake of the news (CoinDesk initially scooped BlackRock’s filing). While the new filing seeks to remedy the deficiencies of prior applications, chiefly through a surveillance sharing agreement (SSA) between an unnamed crypto exchange (reported to be Coinbase) and Nasdaq to spot and prevent fraudulent and manipulative trading behavior, its success is not guaranteed. But rather than pontificate on any one side’s position in this battle, we think it may be helpful to outline the steps that the application process will take and the implications for spot bitcoin and other financial products.

Weekly 2-Jun-30-2023-03-40-50-5569-PM

Outlining the Process

ETFs aiming to hold spot bitcoin have started their life with the filing of a registration statement with the SEC using Form S-1 registration statement under the Securities Act of 1933 (“1933 Act”). Note, this is different from the process of (most) previously approved ETFs in the US, such as the popular ProShares Bitcoin Strategy ETF (BITO), which holds bitcoin futures contracts that trade on the CME and filed a Form N-1A registration statement under the Investment Company Act of 1940. There has been one approved ETF under the 1933 Act, the Teucrium Bitcoin Futures Fund, which appears to have come to life as the Hashdex Bitcoin Futures ETF.

After filing a registration statement with the SEC, the securities exchange on which the ETF is proposed to trade files a proposed rule change under form 19b-4, to ask the SEC for exemptive relief. As mentioned, exchanges require exemptive relief from the SEC to list new types of ETFs. While there is typically a delay between filing the registration statement and the 19b-4, in the case of the BlackRock iShares Bitcoin Trust they occurred on the same day, perhaps to capitalize on the surprise of the filing, perhaps pushed by the CoinDesk scoop earlier in the morning of that day, June 15th. All outstanding spot ETF applications currently propose to trade on one of three exchanges - Nasdaq, Cboe BZX, or NYSE Arca.

No Definitive Timing Presently Exists for the BlackRock ETF, a Misconception

After the 19b-4 has been posted by the exchange (on its website), the SEC releases a notice to solicit comments on the proposed rule change on the SEC’s website with a summary of the proposal. Again, there can be another several days of delay before the filing of the 19b-4 and the notice of filing.

It is important to note that after all these filings, no countdown for the timing of approval or denial has started. This is a common misunderstanding. The countdown for which the SEC needs to respond to the exchange’s proposed rule change only starts once the SEC’s notice of filing is published in the Federal Register, the official journal of the US government that contains government agency rules, proposed rules, and public notices, not when the 19b-4 is filed (more here). Once the notice of filing is published in the Federal Register, then the 240-day clock starts, with response deadlines coming at intervals of 45 days, 45 days, 90 days, and 60 days (in order).

The SEC can delay a decision on an ETF application 3 times, requesting comments or more information, before ultimately deciding whether to approve or deny the rule change. It can approve or deny the application at any time during the process, but historically all requests to allow for spot ETFs have gone through most of the 240-day process before ultimately being rejected. There is a belief that if the SEC delays a decision at the first response deadline for the BlackRock ETF, for which there is still no date, that means it will ultimately be rejected. That may be true, but it is important to note that the Teucrium ETF went through nearly the entire 240-day process, including 3 decision delays, but was ultimately approved.

While we have little doubt the notice of the rule change filing for the BlackRock iShares Bitcoin Trust will ultimately be published in the Federal Register, it is essential to note that as of the time of writing (morning of 6/30/23), it still has not, and thus no response clock or precise timing around the approval/denial/delay process is presently known.

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Other Funds Vie for Approval with the GBTC Discount Narrowing

Complicating matters are the presence of two other funds, the Ark 21Shares Bitcoin ETF and the Grayscale Bitcoin Trust. The Ark fund, proposed to be listed on the Cboe BZX exchanges, had previously been rejected but reapplied recently, hitting the Federal Register on 5/15/23. The SEC delayed a decision on the same day BlackRock filed its S-1 and the exchange filed its 19b-4, 6/15, but the exchange recently filed an amended 19b-4 to include a spot bitcoin SSA, again seen as the lynchpin to the BlackRock filing. The next response deadline from SEC on the Ark fund is 8/13, which may come before a response is due for BlackRock.

In the case of the Grayscale Bitcoin Trust (GBTC), there is outstanding litigation between the SEC and Grayscale, which has sued the regulator for denying its attempts to turn its fund into an ETF. Oral arguments were heard in front of a 3-judge panel on March 7th, and a decision is expected to be rendered this fall, but with no specific date. Regardless of which way it goes, the decision will likely be appealed by either side, stretching out a final determination on the conversion to an ETF.

The news of the BlackRock filing, however, gave traders reason for excitement about the prospects for a spot bitcoin ETF approval, sending shares of GBTC soaring. Prior to the filing, shares of GBTC were trading at a 43.8% discount to the fund’s net asset value (NAV). This discount narrowed to 31.6% through Wednesday's close, a change of 11.7%. Theoretically, if GBTC were able to convert into an ETF, it should trade close to its NAV given the redemption and creation mechanism associated with ETFs.

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Final Thoughts

While we understand the market’s enthusiasm for the long sought-after spot bitcoin ETF, we caution there could still be a long road ahead. By our accounting, the clock has not even started yet. Furthermore, success, while more likely than previous applications, is far from guaranteed. Just this morning the WSJ reported that the SEC had communicated to ETF filers that their applications lacked clarity around their SSAs. Given the “winner take most” advantage for first movers, we can understand the jockeying that has been going on lately. In the case of the bitcoin futures-based ETFs, BITO, which was the first approved, commands 93% of the existing funds’ AUM, $1.13B. We will continue to watch for new developments and report back with any new insights.

Market Update

Weekly Market Data-Jun-30-2023-03-49-04-7019-PM

The price of bitcoin rose 1.2% on the week, driven by continued momentum from the spate of ETF filings. Equities were mixed on the week, with the S&P 500 up 0.3% and the Nasdaq Composite down 0.3%. Gold and oil rallied on the week, with gold up 0.3% and oil up 0.5%. Bonds were mixed as investment grade corporate bonds were flat, high yield bonds rose, and long-term US treasuries fell. Real yields rose, while inflation expectations fell.

Important News This Week


BTC Rallies While ETH Lags Due to Unclear SEC Status - Bloomberg

First Leveraged BTC Futures ETF Debuts - Blockworks

MicroStrategy Acquires 12,333 BTC, Now Holds 152,333 BTC - MicroStrategy

CME Group to Launch Ether/Bitcoin Ratio Futures on July 31 - CME

Regulation and Taxation:

SEC Says Spot Bitcoin ETF Filings Are Inadequate - WSJ

SEC vs Coinbase Legal Showdown Set for July 13 - CoinDesk

South Korea Passes Inaugural Standalone Crypto Bill - Bloomberg

NV Financial Regulator Files to Place Prime Trust in Receivership - State of NV

China's Move to Control the Blockchain - Politico

IMF Says Banning Crypto Assets May Not be Effective Long-Term - The Block

The Rise of Payment and Contracting Platforms - IMF

Cross-Border Exchange of CBDCs Using Automated Market-Makers - BIS


Binance Co-Founder Yi He on Crypto, Regulation, and CZ - Bloomberg

Nomura's Laser Digital Acquires Trading Firm Elysium - The Block

Ledger Launches Custodial Trading Network for Institutions - The Block

Binance EUR Banking Partner to End Support in September - CoinDesk

Mastercard to Launch of ‘Blockchain App Store’ - Blockworks


Bitcoin Tipping Service Damus Gets Booted From Apple App Store - Decrypt

Lightning Network Hits All-Time High in BTC and USD Capacity - The Block

Upcoming Events

Jul 7 - Jobs report

Jul 12 - June CPI report

Jul 26 - FOMC interest rate decision

Aug 13 - SEC response deadline for Ark 21Shares ETF

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