The U.S. The Securities and Exchange Commission (SEC) is extending its evaluation period for cryptocurrency exchange-traded fund (ETF) applications, with potential outcomes expected as late as early 2024. The SEC has a maximum 240-day window to delay ETF decisions, leading some firms to wait till March 2024 to receive verdicts on filings submitted in July 2023.

Renewed Interest and Regulatory Moves

BlackRock’s entrance into the Bitcoin ETF application pool in June, along with a reported “surveillance-sharing agreement” with Coinbase, has generated renewed interest. This development suggests the SEC might be more inclined to consider ETF applications with certain conditions. ARK Invest, led by Cathie Wood, submitted its ARK 21Shares spot Bitcoin ETF proposal in May 2023, which recently received a 21-day delay for public comments.

The SEC’s authority to delay ETF applications by up to 240 days, coupled with the complexities of spot crypto ETFs, creates challenges. The regulator has not yet approved a spot Bitcoin ETF in the U.S., only greenlighting investment vehicles tied to BTC futures in October 2021. The nature of spot BTC ETFs, which involves holding actual Bitcoin within a fund for direct investment, presents distinct regulatory considerations.

Potential Favorability for Smaller Firms

Stuart Barton, co-founder of Volatility Shares, suggests that smaller firms could have an advantage in gaining SEC approval for spot crypto ETFs due to the potential for more cooperative negotiations. He notes that established companies have not substantially moved the approval argument forward.

The SEC’s hesitancy to approve spot crypto ETFs might stem from the evolving and sometimes uncertain U.S. crypto market. Enforcement actions against major crypto platforms, ongoing legal battles like the SEC vs. The Ripple case, and calls for clearer regulations contribute to the regulatory landscape. Proposed legislation seeks to define the roles of the SEC and the Commodity Futures Trading Commission in digital asset regulation.

Analysts’ Views and Regulatory Strategy

Some analysts suggest a 65% likelihood of a U.S. spot Bitcoin ETF approval, driven in part by BlackRock’s application. Industry figures like Cathie Wood and Grayscale, currently suing the SEC over an ETF application, anticipate the possibility of simultaneous approvals for multiple applications to ensure fairness and prevent any single company from gaining an undue advantage.

In conclusion, the SEC’s extended evaluation timeline for Bitcoin ETF applications, along with regulatory complexities and evolving market dynamics, shape the outlook for potential approvals and the broader regulatory landscape in the U.S.