Weekly Analysis

Biyond Weekly: ETF Odds

December 18, 2023

Biyond Weekly: ETF Odds

This week I thought I would take a look at the chances of a Bitcoin ETF being denied as most people are so confident about the approval, plus there have been some unsettling comments this week around the approval.

Starting with SEC Chair Gary Gensler, who told CNBC that the agency’s “new look” at spot bitcoin ETF applications had involved recent court rulings.  This alone appeared very weak.
Gensler reiterated his view that the crypto industry has a lot of noncompliance with existing securities laws, which further compounded my thoughts we need to be cautious.


SEC Chairman Gary Gensler has previously expressed some hesitancy if not hostility, toward cryptocurrency when he said “We don’t need more digital currency…we already have digital currency; it’s called the U.S. dollar” back in June.

However, it is important to note that the SEC chairman, Gary Gensler, who took office in April 2023, was a former MIT professor who taught courses on blockchain and digital currencies.

The SEC has remained steadfast in its concerns and reluctance to approve these ETFs. Former SEC official John Reed Stark is also putting out warnings about the ETF approval.

Stark is currently president of cybersecurity firm John Reed Stark Consulting. He founded and served as chief of the SEC Office of Internet Enforcement for 11 years. He was also an SEC enforcement attorney for 15 years.

The former SEC official also dismissed the reported 90% likelihood of the SEC approving a bitcoin spot ETF as “absolutely absurd.” 

The U.S. Securities and Exchange Commission’s former head of internet enforcement has warned that the newly unsealed Department of Justice (DOJ) filing should “signal the end of Binance.”

Bloomberg has confirmed that there is still a 90% likelihood that at least one highly-anticipated spot bitcoin exchange-traded fund (ETF) product will be approved for the U.S. by January 10, 2024.

The Securities and Exchange Commission will by that time be required to either accept or deny an application from Cathie Wood’s ARK Investment and 21Shares.

Last month, the Treasury sent recommendations to lawmakers asking them to give it more authority and sanctions tools to go after illicit actors in the crypto industry. 

One of the big contentions centers around in-kind versus cash redemptions for the funds, a mechanism that’s a delineating feature of ETFs.

ETF issuer exchanges the fund’s underlying securities with a market maker to create and redeem shares rather than transacting in cash, also fund managers can burden the responsibility for selling the securities to distribute cash to the redeeming shareholders. 

SEC Commissioner Hester Peirce agrees with some of the most bullish cryptocurrency investors—a spot bitcoin ETF should have been approved years ago and that regulators have been standing in the way.

Despite her favorable comments about the ETF, Peirce declined to say whether she thinks. it will be approved. 
I'll be honest, I have to go with the analysts who are in good predicting form at Bloomberg. Eric Balchunas and James Seyffart have been spot on about all things ETF, plus they nailed the Bitcoin futures ETF announcement in 2021 before most.
With this in mind, it's worth considering the chance of continued rejections and what that might mean for the price of the crypto. Price-wise, if a rejection did take place then $25,000 would be my first bearish target.

I will leave you with a few quotes from James Seyyfrart which sums up how I feel about the Bitcoin ETF.
“I think the SEC has kind of been backed into a corner here by the judges throwing out every decision and reasoning it's used to deny an ETF in the past."

And “I think the SEC and Chair Gary Gensler know that they were overplaying their hand a bit and are kind of forced into a corner right now.”

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