Will The SEC Approve A Bitcoin Spot ETF In 2023?

Two key avenues exist to get a Bitcoin spot ETF through the US SEC. However, none of them might work.

The future trajectory of Bitcoin’s price for the remainder of the year hinges largely on a single question: Is the approval of a Bitcoin spot ETF likely in the United States?

In a recent tweet on Monday, Joe Carlasare, a commercial litigator advocating for Bitcoin, expressed his estimation that the probability of such a product being launched within a year stands at around 30-40%. He later spoke to reporters aiming to explain how he arrived at these numbers.

Issues That Arise With The Grayscale Lawsuit

According to Carlasare, the most promising opportunity for introducing a spot ETF to the market lies in Grayscale’s ongoing lawsuit against the U.S. Securities and Exchange Commission (SEC).

Grayscale, the owner of the largest Bitcoin fund globally, initiated a lawsuit against the regulatory body last year. The lawsuit accuses the regulator of denying Grayscale’s ETF application in a manner deemed “arbitrary and capricious.” This decision is particularly perplexing considering the approval of several comparable products in the form of Bitcoin futures ETFs.

Following its initial oral hearing in March, the case displayed a favorable inclination towards Grayscale’s arguments rather than those put forth by the SEC. This development led analysts, including Bloomberg’s Elliot Z. Stein, to assign a 70% probability of victory for Grayscale. Consequently, the likelihood of a spot ETF receiving approval by the end of the year experienced an upswing.

For what seems like the 100th time, my personal view is that the probability of success in approving a spot bitcoin ETF in the near term (inside of a year) is still 30-40% —- which I consider to be fairly good odds.

I strongly reject the view that approval is highly probable… https://t.co/fAuNJ9pkhh

— Joe Carlasare (@JoeCarlasare) July 3, 2023

Nonetheless, Carlasare refused to be optimistic in any way, mostly as a Grayscale victory will not particularly result in a spot ETF. The lawyer commented:

“The hard part about handicapping the Grayscale v SEC suit is that a “win” may just mean the court of appeals directs the SEC to revisit their decision. In other words, the Court could just send the case back for further proceeding and assessment in front of the SEC.”

BlackRock’s SSA With Coinbase

Historically, every applicant with a similar product has faced rejection from the SEC during the review process. Despite this trend, there is a prevailing sense of optimism in the market regarding the recent filing made by BlackRock, the largest asset manager globally. BlackRock’s exceptional track record of success with past applications against the SEC has raised hopes that their filing might have a higher chance of approval.

On Friday, the SEC criticized the filings made by BlackRock and Fidelity, deeming them “inadequate.” The reason for this criticism was the failure to disclose a specific spot Bitcoin exchange with which NASDAQ and CBOE, the respective exchanges, would establish a surveillance sharing agreement (SSA). In response, both companies have promptly refiled their applications, providing clarification that their intended SSA will be formed with Coinbase.

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Despite Coinbase being the largest Bitcoin exchange in the United States, Carlasare expresses concern that the platform may not meet the SEC’s requirement of a market with “sufficient size.” He explained:

“Sufficient size is somewhat ambiguous, but they have said it has to be a market large enough so that a person or firm attempting to manipulate the Bitcoin spot market would need to necessarily trade on that platform. If you apply that to the SSA with Coinbase, one can conclude that’s not going to satisfy [the] SEC, especially where the majority of spot trading volume is outside the U.S.”

In general, Carlasare gives Grayscale up to 50% odds of victory against the SEC in its lawsuit. On the other hand, Coinbase was given 40% odds of being the “secret sauce” required to get BlackRock’s ETF approved. He believes both of these odds are ‘optimistic.’