How do I submit an ETF? How is a Bitcoin spot ETF different from a trust?

By Sean Stein Smith, Forbes; Compiled: Pine Snow, Golden Finance

The potential for a Bitcoin spot ETF listing has been the news that many individual and institutional investors have been waiting for, but how exactly does the process work?

When news broke that BlackRock filed an application with the SEC to create a spot Bitcoin ETF, the crypto market generally saw it as something that would benefit almost universally, and rightly so. While some may express dissatisfaction with the entry of traditional financial institutions into the crypto space, the reality is that institutions of this size and type are needed to participate in the market in order for cryptocurrencies to achieve mainstream adoption.

Enthusiasm for this particular spot ETF application outweighs hope for multiple other similar applications that have been filed recently. On October 16, with the news of the approval of the BlackRock ETF, Bitcoin once exceeded $30,000; When the news turned out to be fake, the price quickly fell back to the previous level. Clearly, attitudes and sentiment around crypto assets have shifted towards institutional players, and BlackRock’s almost 100% success rate on past ETFs continues to provide optimism to the market.

That’s all well and good, but investors may be wondering how the ETF process works, who is responsible for it, and why this is so controversial. Let’s take a look at these specific issues.

How ETFs are submitted

Considering that Bitcoin ETFs have faced multiple rejections and delays, the way ETFs are submitted may seem like a confusing process, but the process has been successfully completed thousands of times. The process can be summarized as follows. First, a potential ETF manager, known as a sponsor, submits a plan to the SEC to create an ETF. This is where the Bitcoin ETF process is put on hold because the SEC keeps rejecting these proposals. In the case of recent applications, such as those filed by BlackRock, the sponsor and authorized participant (usually a large institutional investor) are likely to be the same entity. Suppose the application proceeds from this point onwards, authorizing participants to begin acquiring the underlying assets, placing those assets in trusts, and then using those assets to form ETF creation units.

It sounds like a complicated process, but the fact that there are nearly 3,000 ETFs in the US with assets worth nearly $10 trillion illustrates how unusual it is to adamantly reject a Bitcoin ETF application.

Difference between Bitcoin Spot ETF and Trust Products

Unlike trust products such as the Grayscale Bitcoin Trust product, there are some key differences between these instruments and spot ETFs. First, trust products are usually not redeemable in the form of underlying assets, which helps explain why the price of the underlying asset (Bitcoin) is very different from the trust product itself. Instead, a spot ETF is an open-ended fund system with greater flexibility to issue new derivatives, which allows it to better track the spot price of Bitcoin. In addition, spot ETFs can also provide investors with better liquidity and tax treatment, further highlighting the attractiveness of these instruments to a wide range of investors.

Who approves the ETF

ETFs are approved by the U.S. Securities and Exchange Commission (SEC), which has approved thousands of such products since they were first introduced, which is why dissatisfaction over the lack of Bitcoin spot ETFs has been steadily increasing. Even though other ETFs have been approved, including relatively unusual underlying assets and business models, the SEC has been adamantly opposed to approving the creation of a Bitcoin spot ETF under Gary Gensler, despite increasing pressure from the industry and lawmakers.

Why there is no Bitcoin ETF

The answer to why there is no Bitcoin spot ETF in the US market can vary depending on the respondent. In official comments and statements, the SEC has repeatedly stressed that because Bitcoin is such a volatile asset, the crypto industry is rife with fraud and abuse, and other investor protections have not yet been put in place, the market is not mature enough to be used as an underlying asset for ETF products.

On the other hand, many cryptocurrency proponents believe that the lack of spot ETF offerings is a testament to the anti-crypto and anti-Bitcoin stance that some US policymakers seem to have embraced. Not surprisingly, as the SEC has filed a series of enforcement actions and lawsuits against companies operating in the space, the Commission has also proven unwilling to allow new cryptocurrency or Bitcoin products to enter the market.

With the potential of spot Bitcoin ETFs increasing, and frankly, its potential looks higher than ever, investors and entrepreneurs should understand how the ETF process works, who is involved, and why the process takes so long.