JPMorgan: “even if approved, the spot Bitcoin ETF will not represent a turning point”


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According to a recent report by JPMorgan, the SEC’s approval of a spot Bitcoin ETF, should there be one, is unlikely to represent a significant turning point for cryptocurrency markets. 

Specifically, the report points out that such ETFs have been around for some time in Canada and Europe, but have not attracted much interest among investors. Let’s look at all the details below. 

JPMorgan on whether or not to approve the Bitcoin ETF

As anticipated above, JPMorgan stated in a recent research report that the approval by the US Securities and Exchange Commission (SEC) of a spot Bitcoin exchange-traded fund (ETF) will not represent a significant turning point for cryptocurrency markets, and this is due to several reasons.

It is worth recalling that although the SEC has received numerous applications, it has yet to approve such an ETF. However, there is now more optimism about the possibility of the regulatory authority approving one. 

This is because it is assumed that some of the earlier concerns have been addressed in recent documents, according to JPMorgan. In addition, some analysts led by Nikolaos Panigirtzoglou stated the following: 

“Spot bitcoin ETFs have been around for some time outside the US, Canada and Europe, but have failed to attract much investor interest.”

As we know, last month, a division of BlackRock filed an application for the creation of a spot Bitcoin ETF, prompting other asset managers such as Invesco and Wisdomtree to file or renew applications as well.

Spot ETFs or futures-based ETFs?

The report further states the following: 

“Bitcoin funds in general, including futures-based and physically backed funds, have attracted little investor interest since Q2 2021, not even benefiting from investment outflows from gold ETFs over the past year or so.”

The document also states that physically-backed Bitcoin ETFs offer some advantages over futures-based funds, although they are rather marginal. 

In fact, spot ETFs provide a more direct and secure method of gaining exposure to Bitcoin, eliminating some of the complexities associated with direct custody and transfer of BTC, as well as the basis risk associated with futures-based products.

The report added that spot ETFs are more likely than futures-based ETFs to reflect real-time supply and demand. 

Hence, the approval of spot ETFs in the United States could lead to increased liquidity and improved price transparency in Bitcoin spot markets.

In other words, according to the bank, the introduction of spot Bitcoin ETFs could result in a migration of trading activity and liquidity away from the US Bitcoin futures markets to the extent that spot Bitcoin ETFs replace futures-based Bitcoin ETFs.

Bernstein firm’s view on possible future action by the SEC 

According to a research report released Monday by brokerage firm Bernstein, the US Securities and Exchange Commission (SEC) has a difficult position to maintain on Bitcoin (BTC) spot exchange-traded funds (ETFs). 

Specifically, it appears that the odds of approval are quite high. Bernstein notes that the SEC has already allowed futures-based Bitcoin ETFs and recently approved leveraged futures ETFs on the condition that the futures prices come from a regulated exchange such as the CME.

According to analysts led by Gautam Chhugani, the SEC believes that a spot Bitcoin ETF would not be reliable because spot exchanges, such as Coinbase, are not subject to its regulation, and as a result spot prices are not reliable and may be subject to manipulation.

The report also mentioned Grayscale‘s bid to convert its Grayscale Bitcoin Trust (GBTC) into a spot exchange-traded fund (ETF), a matter currently pending before an appeals court.

Analysts wrote that the court did not seem convinced that the futures price was not derived from the spot price, making it difficult for the courts to accept approval of a futures-based ETF and deny the spot-based one.

In addition, according to the report, the industry suggested implementing a surveillance agreement between the operator of a spot exchange and a regulated exchange such as Nasdaq.

The lack of a spot Bitcoin ETF has led to the proliferation of over-the-counter products such as the Grayscale Bitcoin Trust (GBTC), which are more expensive, less liquid and less efficient, the broker said. 

It is worth mentioning that Grayscale is a subsidiary of Digital Currency Group (DCG), the parent company of CoinDesk.

Finally, the report states that the SEC would prefer to introduce a regulated Bitcoin ETF led by more traditional Wall Street participants and with oversight of existing regulated exchanges, rather than deal with an OTC product like Grayscale that covers the institutional gap.