Based on investor interest in Canada and Europe, JPMorgan’s examination of the SEC’s Bitcoin ETF approval found little influence on cryptocurrency markets.
The SEC’s approval of a spot Bitcoin ETF, should there be one, is unlikely to signal a big turning point for the cryptocurrency markets, according to a recent analysis by JPMorgan.
The research specifically notes that these ETFs have been available in Canada and Europe for some time, but investors have not shown much interest in them. Let’s examine every detail below.
JPMorgan ‘s decision regarding the Bitcoin ETF
As mentioned above, JPMorgan claimed in a recent research paper that a number of factors would prevent the US Securities and Exchange Commission (SEC) from approving a spot Bitcoin exchange-traded fund (ETF) from having a big impact on the cryptocurrency markets.
It is important to remember that the SEC has received multiple applications for such an ETF but has not yet authorized it. On the other hand, there is now more hope that the regulatory body will approve one.
This is because, in accordance with JPMorgan, it is presumed that some of the previous worries have been resolved in current documents. Also stated by several analysts under the direction of Nikolaos Panigirtzoglou:
Outside of the US, Canada, and Europe, spot bitcoin ETFs have been available for some time, but little investor interest has been generated by them.
As is generally known, a division of BlackRock submitted an application last month for the establishment of a spot Bitcoin ETF, which prompted other asset managers including Invesco and Wisdomtree to submit or renew their own proposals.
ETFs based on futures or spot markets?
The following is stated further in the report:
Bitcoin funds in general, including futures-based and physically backed funds, have attracted little investor interest since Q2 2021, not even benefiting from investment outflows from gold ETFs over the past year or so.
Additionally, although they are rather minor, the document claims that physically-backed Bitcoin ETFs have some advantages over futures-based funds.
In actuality, spot ETFs offer a more direct and safe way to have exposure to Bitcoin, removing some of the hassles related to direct custody and transfer of BTC as well as the basis risk related to futures-based products.
The survey also stated that spot ETFs are more likely to reflect real-time supply and demand than futures-based ETFs.
Therefore, the US government’s approval of spot ETFs could result in more liquidity and more pricing transparency in the Bitcoin spot market.
In other words, the bank believes that, to the extent that spot Bitcoin ETFs replace futures-based Bitcoin ETFs, the launch of spot Bitcoin ETFs could cause a shift of trading activity and liquidity away from the US Bitcoin futures markets.
The perspective of the Bernstein firm on potential SEC future action
The US Securities and Exchange Commission (SEC) has a difficult position to maintain on Bitcoin (BTC) spot exchange-traded funds (ETFs), according to a research study published on Monday by trading company Bernstein.
Particularly, approval appears certain. Bernstein notes that the SEC has approved leveraged futures ETFs and Bitcoin ETFs based on futures pricing from a regulated exchange like the CME.
Spot exchanges like Coinbase are not regulated by the SEC, making spot pricing inaccurate and potentially manipulable. Gautam Chhugani-led analysts agree.
Grayscale’s effort to convert its Grayscale Bitcoin Trust (GBTC) into a spot exchange-traded fund (ETF) is currently before an appeals court.
Analysts said the courts didn’t seem to believe the futures price wasn’t derived from the current price, making it hard for them to allow a futures-based ETF and reject the spot-based one.
The industry advocated a surveillance agreement between a spot exchange operator and a regulated exchange like Nasdaq, the paper said.
The broker argued that the lack of a spot Bitcoin ETF has led to OTC products like the Grayscale Bitcoin Trust (GBTC), which are more expensive, less liquid, and less effective.
It is important to note that Grayscale is a division of CoinDesk’s parent business, Digital Currency Group (DCG).
The paper concludes by stating that the SEC would rather deal with an OTC product like Grayscale that fills the institutional gap than launch a regulated Bitcoin ETF that is overseen by current licensed exchanges and managed by more established Wall Street participants.