September 1, 2023, Washington D.C. – The U.S. Securities and Exchange Commission (SEC) has once again postponed its decision on a series of spot bitcoin exchange-traded fund (ETF) applications. This delay affects numerous applicants, including financial powerhouses such as BlackRock, WisdomTree, Invesco Galaxy, Wise Origin (Fidelity), VanEck, Bitwise, and Valkyrie Digital Assets.

Backdrop:

The SEC’s decision to delay comes amidst a broader conversation on crypto policy, with the industry aiming to establish the digital economy’s legal, regulatory, and compliance best practices for the future. The delay has had immediate market repercussions, with Bitcoin’s price dropping 4.1% in the past 24 hours to $26,100.

The Applications in Review:

The SEC began its review of the latest batch of applications last month, which includes both crypto-centric and traditional finance firms. These institutions are vying to launch the first spot bitcoin ETF. Advocates argue that such an ETF would pave the way for increased retail investment in bitcoin, eliminating the need for investors to set up wallets or purchase bitcoin directly.

Extended Deadlines and Public Feedback:

The SEC’s recent orders have not provided a conclusive decision. Instead, they have extended existing comment periods, allowing for more comprehensive public feedback. Notably, the new deadlines for Wise Origin, Galaxy, and WisdomTree are set for October 17, with Valkyrie’s deadline two days later on October 19. Bitwise faces an October 16 deadline.

Historically, the SEC has utilized the full 240-day review period before finalizing its decision on such applications. This practice means that the recent delays were somewhat anticipated by those closely following the proceedings.

Legal Challenges and Court Rulings:

Earlier this week, the D.C. Circuit Court of Appeals criticized some of the SEC’s reasons for rejecting bitcoin ETF applications as “arbitrary and capricious.” This ruling came after Grayscale challenged the SEC’s basis for denying its proposal to convert the Grayscale Bitcoin Trust into an ETF.

Judge Neomi Rao, representing the unanimous court, highlighted inconsistencies in the SEC’s decisions. She pointed out that the SEC approved bitcoin futures ETFs while failing to provide a clear rationale for viewing these products differently from spot ETFs, especially given the near-perfect correlation between spot and futures market prices.

Looking Forward:

The SEC’s repeated delays and the recent court ruling suggest a complex regulatory landscape for bitcoin ETFs. As the SEC revisits Grayscale’s application and others, the crypto community and financial institutions alike await a clear direction on the future of bitcoin ETFs in the U.S.