The U.S. Securities and Exchange Commission (SEC) on Thursday postponed its decisions on seven Bitcoin exchange-traded fund (ETF) proposals, including one submitted by BlackRock, the world’s largest asset manager. 

Seven firms — BlackRock, WisdomTree, Invesco Galaxy, Wise Origin, VanEck, Bitwise and Valkyrie Digital Assets — published ETF applications in the Federal Register on July 19. The SEC was scheduled to rule on all seven applications by Sept. 4. However, the regulator postponed by 45 days meaning the seven firms will now have to wait until mid-October for a decision. 

“We fully expected delays on this round of spot Bitcoin ETF filings. Would have been a shock if they were approved this week,” James Seyffart, research analyst at Bloomberg Intelligence, tweeted on Friday.

To the frustration of those in the crypto industry, the SEC can delay its verdict on ETF proposals for a maximum of 240 days, or about six months. The federal agency had already delayed its deadline on the proposal from Cathie Wood’s Ark Investment Management on Aug 11. 

The SEC’s latest decision comes days after the District of Columbia Court of Appeals sided with Grayscale Investments, the manager of the world’s largest Bitcoin fund, the Grayscale Bitcoin Trust (GBTC). The court overturned an earlier SEC decision preventing GBTC’s conversion into a spot Bitcoin ETF. 

District Court Judge Neomi Rao called the SEC’s denial of Grayscale’s proposal “arbitrary” and “capricious” in the review of the petition because the agency failed to clearly explain what distinguishes spot Bitcoin ETFs from already-listed futures ETFs. 

Grayscale argued in an October 2022 legal update posted on its website that the SEC did not provide clear explanations for the rejection, violating the Administrative Procedure Act. The company also stated that the SEC decision was inconsistent with its approvals of Bitcoin futures ETFs.

Despite the SEC postponing the latest series of applications, Nigel Green, founder of financial management group deVere, said in a statement that Grayscale’s victory now makes spot Bitcoin ETFs in the U.S. an “inevitability.”

“The court’s decision destroys the SEC’s central argument for rejecting every spot Bitcoin ETF over the last few years. This win paves the way for Bitcoin ETFs,” Green said.

Georgetown University’s McDonough School of Business professor James Angel said before the court’s decision that the SEC may even want to lose the Grayscale case, forcing them to allow all the ETF applications currently pending. 

“This would take the blame away from the SEC if and when Bitcoin has another crash or another crypto ice age,” Angel said.

Bitcoin’s price rollercoaster pause

The news of Grayscale’s win triggered a surge in crypto prices. Bitcoin grew 7% shortly after the news to above US$28,000 on Tuesday. But the SEC’s subsequent delay in the seven other cases Thursday poured cold water on the sector, triggering a downturn to below US$26,000. Bitcoin fell 4.62% in the past 24 hours to US$25,988 at 3:45 p.m. on Friday in Hong Kong. 

The sharp price swings reflect the industry’s interest in Bitcoin ETFs. Ric Edelman, founder of the U.S.-based think tank Digital Assets Council of Financial Professionals, said that a green light from the SEC, if given, would cause an even greater upswing in crypto prices.

“Around half of the nation’s financial advisors in the United States personally own Bitcoin, but only 12% are recommending Bitcoin to their clients,” said Edelman. “And the primary reason that advisors are not recommending Bitcoin is because there isn’t an ETF.”

“Those advisors manage about US$8 trillion in investor assets,” he added.

However, Georgetown’s James Angel said that a spot Bitcoin ETF win will not be a long-term growth factor for the crypto market.

“Investors already have an almost identical product with the futures-backed ETF, so I don’t see a big long-term impact,” said Angel. “There will clearly be an emotional short-term rally when the approval comes out, but that will get lost in the noise in the long-term.” 

Sean Stein Smith, professor of economics at the City University of New York and founder of the Institute for Blockchain & Cryptoasset Research, said that the approval of spot Bitcoin ETFs will have a positive impact on the wider crypto industry.

“[Spot Bitcoin ETFs] will open the proverbial door for more product approvals and launches, including those that are related to Bitcoin as well as other crypto assets,” Smith added.

So when will investors have access to spot Bitcoin ETFs from investment giants like BlackRock, Fidelity and Invesco? 

Taking account of different possibilities and factors, it is more likely we’ll see a batch of ETFs approved in the early half of next year, said Julian Klymochko, founder and CEO of Calgary-based investment solutions firm Accelerate

“I think a spot Bitcoin ETF in the U.S. is a 2024 story. When in 2024 they’ll launch, it’s to be seen, but I wouldn’t be surprised to see it in the first or second quarter,” said Klymochko. “I think that things are going to be moving quickly. There are many, many companies that have applied for a spot Bitcoin ETF, so it’s certainly going to be a battle.” 

Crypto wild west: SEC sheriff’s rules

The series of spot Bitcoin ETF applications from major U.S. firms was submitted in the midst of an ongoing crypto crackdown. Increased scrutiny over the industry by the SEC is based on the regulator’s claim that most cryptocurrencies other than Bitcoin are securities. The federal agency sued Coinbase and Binance.US in July on the basis that the two exchanges offer unregistered securities in the form of cryptocurrencies.

More recently, the SEC made its first enforcement action against non-fungible tokens (NFTs), charging media company Impact Theory with offering unregistered securities in the form of NFTs on Monday.

SEC Chair Gary Gensler, who has emerged as the crypto industry’s main bogeyman, said at a Senate Appropriations Financial Services subcommittee hearing in Washington D.C. in July that the “Wild West” of crypto is “rife with noncompliance.” 

Gustavo Schwenkler, professor of finance at Santa Clara University, said that Gensler and the SEC have reason to be concerned.

“The existing ETFs track derivatives that are traded on strictly regulated derivatives exchanges. There are not that many derivatives exchanges that are closely monitored by the regulator,” said Schwenkler. “A spot Bitcoin ETF would track the Bitcoin price that is available across global crypto exchanges. There are a lot of them and many are not well regulated.”

However, Megan Enright, spokesperson for Swiss digital asset manager 21Shares, said that “material changes” in the market over the past year or so mean that it is now better prepared for ETFs than it was in the past.

“The market has matured, there is additional data supporting the efficiency of these markets and there are new surveillance sharing agreements that are being established between major crypto markets and traditional exchanges,” Enright added. 

In April, 21Shares refiled its application for a spot Bitcoin ETF in the U.S. with its partner, Ark Invest.