The Ten-Year Journey of Bitcoin Spot ETF in the U.S.: The Extreme Tug-of-War Between Crypto Institutions, Wall Street, and the SEC

Author: flowie, ChainCatcher

Editor: Marco, ChainCatcher

In the early morning of January 11, Beijing time, the U.S. Securities and Exchange Commission (SEC) officially approved 11 Bitcoin spot ETFs, including traditional asset management giants like BlackRock, Fidelity, Invesco, and Grayscale, as well as emerging capital firms, all of whom have received their entry tickets.

The road to the approval of Bitcoin spot ETFs in the U.S. has been long and winding. From the first application for a Bitcoin ETF trust by the Winklevoss brothers in 2013 to the birth of the first U.S. Bitcoin spot ETF in 2024, Wall Street and U.S. regulators have engaged in a decade-long game of chess.

The eventual approval of the U.S. Bitcoin spot ETF is attributed not only to the continuous growth of Bitcoin, which capital cannot ignore, but also to the relentless efforts and persistence of cryptocurrency industry practitioners.

Early Efforts of Crypto Asset Investment Institutions

The application for a Bitcoin ETF can be traced back to 2013. On July 1 of that year, the Winklevoss brothers, Cameron and Tyler Winklevoss, applied to establish the Winklevoss Bitcoin Trust, stating in their application that "the sponsors believe that this trust is the first exchange-traded product aimed at tracking the price of Bitcoin and other digital assets."

However, the SEC denied the Winklevoss application in 2017, citing concerns about "potential fraud or manipulation" due to the lack of regulation in the Bitcoin market. In the following years, several institutions followed suit but to no avail.

According to incomplete statistics from ChainCatcher, prior to the approval of the Bitcoin spot ETF, the SEC had rejected at least 30 applications for Bitcoin spot ETFs. Notably, in 2021, 13 institutions had their Bitcoin spot ETF applications rejected, primarily due to concerns about investor protection and market manipulation.

However, in October of that year, the SEC approved the first Bitcoin futures ETF in the U.S. — the ProShares Bitcoin Strategy ETF, followed by approvals for Bitcoin futures ETFs from Valkyrie, VanEck, and others.

This also set the stage for Grayscale's lawsuit against the SEC.

In October 2021, Grayscale first applied to convert its GBTC into a Bitcoin spot ETF, but after being denied, it continued to apply without success. In November 2021, the SEC rejected the application on the grounds of non-compliance with the Securities Exchange Act of 1934. By June 2022, the SEC's reasoning shifted to a failure to address concerns about preventing fraud and manipulation.

After multiple rejections, Grayscale filed a lawsuit against the SEC in June 2022. Grayscale argued that the SEC had failed to apply a consistent approach to similar investment instruments, rendering its actions arbitrary and capricious, in violation of the Administrative Procedure Act and the Securities Exchange Act of 1934.

Traditional Wall Street Giants Enter the Fray

In 2022, the crypto market faced a tumultuous period, with the collapse of LUNA, FTX, and others leading to a crisis of trust in the crypto market, causing the progress of Bitcoin spot ETF applications to temporarily stall. It wasn't until April 2023 that Ark and 21Shares resubmitted applications, becoming the first institutions to apply for Bitcoin spot ETFs in 2023. According to the approval process, the SEC had a deadline for approvals set for January 10, 2024.

Subsequently, BlackRock's submission of a spot Bitcoin ETF application brought hope to cryptocurrency practitioners. As the world's largest asset management firm, BlackRock's application marked a significant turning point for Bitcoin spot ETFs. Despite the SEC's ongoing regulatory crackdown, which included lawsuits against major exchanges Binance and Coinbase, BlackRock, known as the king of ETFs, had a track record of 576 ETF applications with only one rejection. Coupled with its intricate connections to the SEC, this reignited hope in the crypto market for the approval of Bitcoin spot ETFs.

BlackRock's entry may have also restored confidence among other institutions, as Fidelity, WisdomTree, VanEck, and several other Wall Street giants subsequently announced their applications.

Another piece of good news followed: in July 2023, Grayscale submitted a letter to the U.S. Court of Appeals for the D.C. Circuit, protesting the SEC's approval of leveraged Bitcoin futures ETFs while continuing to reject the approval of spot Bitcoin ETFs like GBTC. In August 2023, Grayscale ultimately won a 3-0 ruling against the SEC regarding the rejection of its application to convert GBTC into a Bitcoin spot ETF, adding further momentum to the path for Bitcoin spot ETF approval.

The judge stated in the ruling that the SEC's repeated rejections of Grayscale's GBTC conversion to an ETF were "arbitrary and capricious, and the commission could not explain its differing treatment of similar products."

However, in September, the SEC decided to postpone its decision on the spot Bitcoin ETFs submitted by BlackRock, Fidelity, and other institutions. Following this news, Bitcoin's price briefly fell to $25,965, with a maximum drop of 5.1% within 24 hours.

Afterward, institutions applying for Bitcoin spot ETFs engaged in multiple back-and-forths with the SEC, experiencing several delays, application modifications, and discussions.

In October 2023, SEC Chairman Gensler's stance on Bitcoin spot ETFs changed. In a public interview, Gary Gensler stated that staff were "considering" multiple Bitcoin spot ETFs and emphasized that supporters of Bitcoin ETFs must ensure their products are registered with the SEC and go through a filing process similar to that of an IPO.

As 2024 approached, the U.S. Bitcoin spot ETF finally emerged amidst widespread anticipation.