ProShares’ BITI Wk. 1 Report Card Draws Mixed Reactions: Here’s How It Could Affect Looming Spot Bitcoin ETF Decisions

A spot Bitcoin ETF has been brewing in the US market for some time, but even as influential figures in the crypto space call for an inevitable approval of one such offering, the wait could be longer. There is little optimism in the US financial regulator, SEC, delivering a positive ruling on the two standing direct Bitcoin ETF applications whose final deadlines are approaching.

Hopes wither ahead of the final deadlines

Bitwise Bitcoin ETP Trust is one of those in question, while the other is Grayscale Bitcoin Trust, which proposes converting the flagship trust into an exchange-traded fund. Both were filed last October, although Bitwise had made an initial application in January 2019, which it later withdrew.

A verdict on the Bitwise Bitcoin ETP Trust is expected next week on Wednesday (June 29). It will likely give an inkling of what decision the commission will deliver on Grayscale’s proposal a week later, on July 6. The SEC has put the verdict on ice by playing the ‘postpone’ card, but there’s no more room left to wriggle. The upcoming dates are the final deadlines.

The SEC’s nod on Teucrium Futures Fund in April rekindled hopes of a spot Bitcoin ETF arriving before year-end as it was approved under the Securities Act of 1933 and the Securities Exchange Act of 1934. This contrasts the previous pattern as other bitcoin futures ETFs were rubberstamped under the Investment Company Act of 1940.

The deviation raised hopes for approval after a slew of rejections and several instances of the watchdog punting on a decision. ARK 21 Shares, Bitwise, Fidelity and WisdomTree, are some institutions whose filed Bitcoin ETF proposals suffered this fate.

Scales also leans towards a ‘No’ verdict

Experts closely monitoring the ETF space have surmised that the chances of the US regulator giving the okay on either offering are slim.

Bloomberg Intelligence’s James Seyffart told CoinDesk that the regulator would only give the thumbs up after it has confirmed the market “has surveillance-sharing agreements” or is under the CFTC’s purview. The latter can only happen if several spot bitcoin exchanges become regulated by the financial authorities.

This view is shared by other analysts who advance that the SEC will keep dismissing spot proposals until it has total oversight of crypto exchanges.

Not so fast, though; there could be a twist in this plot

Market activity in Grayscale Bitcoin Trust suggests that a Bitcoin ETF approval is not entirely out of the window. The discount between GBTC’s share price and the underlying asset’s price has been observed to be falling.

This action has been interpreted as a sign that a ‘yes’ decision on a spot ETF application is around the corner. Another group of market analysts contend that an ‘approval’ train is on the rails, and there is no stopping it. They, however, send word that the collapse of the Terra chain as well as the storm which has recently hit lending institutions and digital asset managers could put the subject on the back burner.

Dragging the approval of a spot Bitcoin ETF could, on its own, act against the likelihood of the product entering the US market soon. Oppenheimer’s analyst Owen Lau recently hypothesized that the industry might withdraw from seeking approval with every rejection and postponement.

Bitwise is taking it slow but Grayscale, not so much

Bitwise’s Chief Investment Officer Matt Hougan remains confident that the US market will welcome a spot bitcoin ETF, especially following the recent approvals of the Teucrium fund and ProShare inverse bitcoin futures.

Grayscale, unlike Bitwise, which is modest in pushing for a green light, has resorted to railroading the SEC. The digital asset management firm met with the commission last month, which was reportedly productive. It has also previously lobbied for support from the public, urging them to mount pressure on the regulator.

Grayscale’s Michael Sonnenshein sees the inverse Bitcoin ETF approval as a good sign

Sonnenshein remains sanguine, recently stating on Twitter that ProShare’s latest NYSE-listed offering could weigh in favor of an eventual spot Bitcoin ETF approval. It is the latest derivatives-based product to launch in the US, notably coming before a spot Bitcoin ETF. The Grayscale chief described the commission’s nod as an acknowledgement of Bitcoin’s maturity. In his view, the SEC is being more receptive, albeit circumspectly.

BITI’s opening day was poor but the picture is changing

ProShares’ short Bitcoin ETF debuted on Tuesday, but the reception of the product was less than impressive on the first day. The uninspiring day-one report card was dismissed by market analysts. Bloomberg’s Eric Balchunas explained that the performance was expected owing to “the exotic form of exposure.”

He also cited the passive attitude resulting from the delayed launch and failure of Australia’s spot Bitcoin ETFs to impress as reason for the low figure. The ETFs in question, Cosmos Purpose Bitcoin Access ETF and ETFs 21Shares Bitcoin ETF were initially set to launch in April but faced a setback that pushed the date to May 12.

Nothing but a hiccup

The BITI fund appeared to have picked up the pace on Wednesday and Thursday as more observers swarmed. It logged an inflow volume equivalent to 929 BTC after the first three days, more than Valkyrie’s and VanEck’s equivalent products. The market-dominant Bitcoin-linked ETF, BITO, as of Friday, boasted assets under management translating 31,000 BTC.

The short Bitcoin fund debut has also been interpreted as a moment that could provide impetus for a rally, a postulation backed by a similar occurrence last year. BITO’s approval last October was cited as the force that partly inspired Bitcoin price to race to an all-time few weeks after its launch.

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