SEC Delays Decision on Bitcoin ETF Proposals Amidst Government Shutdown Uncertainty

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Key Takeaways

  • Reportedly, the timing of the delays is related to the expected U.S. government “shutdown” potentially taking place on Oct. 1, 
  • SEC delayed Hashdex’s bitcoin ETF which was expected on or around Oct. 6.

The United States Securities and Exchange Commission (SEC) has deferred its decision on multiple proposals for spot Bitcoin exchange-traded funds (ETFs), including one from investment giant BlackRock. The delay comes as the looming possibility of a government shutdown casts uncertainty over regulatory proceedings.

In addition to BlackRock, ETF applications from Invesco, Bitwise, and Valkyrie have also faced delays, as confirmed by separate filings made on September 28. 

These SEC filings serve as the initiation of proceedings to determine whether proposed rule changes should be approved or rejected. Successful rule changes would pave the way for spot Bitcoin ETFs to trade on commodities exchanges.

The SEC has invited comments on various aspects of these proposed ETFs. One section seeks input on whether these ETFs are susceptible to fraud and manipulation, while another questions whether Bitcoin’s decentralized trading, slow transactions, and capital requirements inherently make it resistant to market manipulation. Furthermore, the SEC inquires about the potential benefits of a surveillance-sharing agreement with Coinbase in detecting and preventing fraud, an agreement included in several pending ETF proposals.

While these orders do not explicitly postpone the SEC’s decision, the extensive information requested could extend proceedings. Ultimately, the SEC may choose to reject the applications, prompting applicants to resubmit and restart the process.

Despite the titles of these orders suggesting potential approval, certain segments of the filings convey a cautious tone. The SEC noted that it is “providing notice of the grounds for disapproval under consideration” and clarifies that the ongoing proceedings do not indicate any final conclusions.

This delay in decisions occurred ahead of the scheduled second deadline date for many applicants, who had initially expected responses from the SEC between October 16 and 19. The timing of these delays is connected to the anticipated U.S. government “shutdown” slated for October 1, which could disrupt various federal agencies, including financial regulators.

This delay follows previous postponements for other Bitcoin ETF proposals, such as those from Ark 21Shares and GlobalX, which are now set to be reviewed in January.

The ongoing delays are tied to Congress’s inability to reach an agreement on funding bills to support government operations. To prevent a shutdown, Congress needs to pass 12 separate full-year funding bills by October 1. Further delays for the seven firms with upcoming deadlines in mid-January remain possible, and the SEC must make a final decision by mid-March at the latest.

Bloomberg ETF analyst Eric Balchunas previously raised the probability of a spot Bitcoin ETF approval by the end of 2023 from 65% to 75%. He cited the decisive ruling by the U.S. Court of Appeals Circuit in favor of Grayscale as a key factor behind this shift.

Among the applicants, BlackRock’s ETF proposal is highly anticipated, given the asset manager’s track record of SEC approvals, which stands at approximately 575-1.

The persistent delays have led to speculation about whether the SEC intends to challenge the Grayscale decision. In that case, a panel of judges sided with Grayscale, prompting the SEC to re-evaluate its application to convert its Bitcoin Trust (GBTC) into an ETF.

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Saniya Raahath
Saniya Raahath

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