James Seyffart, an ETF research analyst at Bloomberg Info who is familiar to the crypto community for predicting and following the progress of spot Bitcoin ETFs, is influenced by their sentiments that most believe that approval may be on the horizon.
While guest on The Scoop podcast, Seyffart reiterated the window for potential spot bitcoin: between January 8 and January 10, 2024.
Since October, Seyffart has said there is a 90% chance of approval by Jan. 10, which is the deadline for Ark and 21Shares to apply for resolution, which was first filed in April, ahead of financial giant BlackRock in June, with a deadline approaching, which currently includes 12 other companies in the space. So far, the U.S. Securities and Exchange Commission (SEC) has postponed making a decision several times, but for the Ark and 21Shares ETFs, it must make an approval or rejection decision by the deadline of January 10.
According to Seyffart, the SEC has been engaged in "tactical" delays to schedule various applications, or at least to be approved at the same time, so as not to give an advantage to one company alone – which is why Seyffart believes that it will be fully approved in January.
"But if the SEC were to veto them at that time, they wouldn't be a rational regulator in a way," he said.
The SEC doesn't want to play the role of a "kingmaker."
Seyffart said the SEC "doesn't want to pick one of the most promising companies to win these competitions, whether it's getting the most assets or getting the most liquidity." So if the SEC were going to approve all of these things, it would most likely approve all of them at once, because it didn't want to play the role of a kingmaker in this situation. ”
When asked why, Seyffart said, "We heard complaints from different people, including those involved in the process, and others who knew the stakeholders. ”
He added: "We have very reliable sources, but there are also some sources whose reliability cannot be determined. But we've heard similar things from different people, from different angles, and we've been listening to them for more than a year. However, it's really important, trying to find out the truth of the matter, looking at the calendar, looking at all the application dates and deadlines, looking for clues."
Seyffart went on to say that the prospect of large-scale approvals is unusual compared to traditional ETF applications, where a company would be listed first if it was the first to apply and get SEC approval, but crypto-related products are a unique situation, with multiple Ethereum futures ETFs approved at the same time earlier this year.
"There are a lot of initiatives taken by different players [for Ethereum futures ETFs]," the analyst said. Valkyrie in particular, a few other issuers scrambled to get the first shot, but the SEC basically went out of their way to make sure that every applicant was approved on the same day. So this shows us that spot bitcoin ETFs will follow a similar trajectory if the SEC were to approve it."
The impact of grayscale on spot Bitcoin ETF approvals
Seyffart said Grayscale Investments' victory over the SEC in August over an application to convert its flagship Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF is another major factor in the SEC's possible approval.
"I think the SEC has been pushed into a corner, and the judges have basically reversed every decision and reasoning that has been used to reject ETFs in the past, and I think the SEC and Chairman Gary Gensler know that they have gone a little bit too far and are now kind of forced into trouble," he said. ”
He argues that Grayscale's case eliminates the need to oversee sharing agreements, similar to the agreements that many applicants currently have with Coinbase. However, because this situation is unprecedented, there is no guide to follow the response time or approval process. Seyffart noted that despite the ongoing meeting between Grayscale and the SEC, the situation is still exceptional.
"So my view is that if there's a company that wasn't approved on day one, then it's probably grayscale," he added.
Ethereum spot ETFs may take longer
Despite the optimistic outlook for the imminent approval of a Bitcoin ETF spot ETF, Seyffart said the outlook for the Ethereum ETF spot is a "completely different situation."
Seyffart said he could almost guess how the SEC and Gensler would argue how special Ethereum products are, noting that the futures market is not as robust or institutionalized as Bitcoin, emphasizing the differences between Bitcoin's proof-of-work model and Ethereum's proof-of-stake model.
He added that he disagrees with these views, but if the SEC wants to stop the process, it may delay a decision or assert that Ethereum is a security.
However, in Seyffart's view, the SEC has implicitly accepted Ethereum as a commodity, noting that the final deadlines for resolutions of the Ark/21Shares and VanEck spot Ethereum ETFs are May 23 and May 24, so he believes that the spot Ethereum ETF will eventually be "more likely" approved by the end of May.
"That doesn't mean they're automatically approved," he said. But I do think that if the spot bitcoin ETF is approved, it will be a 100% positive sign, a very positive sign that we may see the spot Ethereum ETF approved, but not yet 90% of the chance of winning, that's for sure."
Potential timeline between approval and launch
The simple answer is that the timeline between the potential approval and launch of a spot Bitcoin ETF remains uncertain.
Seyffart noted that the approval falls under the SEC's Transactions and Markets Division's 19b-4 process. But for an ETF to launch and begin trading, its S-1 prospectus must first be approved by the SEC's Corporate Finance Division, which provides details of the issuer's business operations and finances.
Seffart added that there have been multiple meetings between the SEC and the issuer to resolve these issues, which has led him to believe that the S-4 signing could happen once the 19b-1 is approved. Conversely, if the SEC is not prepared, they may only provide 19b-4 approval, and the listing will be delayed until the S-1 is approved, which can take days or weeks. However, he stressed that the exact timeline for forecasting is uncertain.
Seyffart stressed that the cautious approach of mainstream brokerage firms and banks, which is characterized by rigorous due diligence processes and long-term track record requirements, could slow their adoption if these funds were to go public, saying, "Therefore, not all advisors will immediately put a few percent of their clients' portfolios into it".
Those who buy the product immediately may be more inclined to independent IRAs or independent advisors, with some of the funds simply transferring risk from existing Grayscale trusts or the international crypto ETF ecosystem. "That said, if anybody was able to add it quickly, it would probably be BlackRock because they have a very good relationship with all of these types of platforms," Seyffart said. ”
"Obviously, I think they're going to see a huge inflow of money on day one, and I guess it's probably hundreds of millions of dollars," Seyffart said. Over a longer term perspective, there is no doubt that billions of dollars will flow into these products – and there's a reason why the world's largest asset managers (referring to BlackRock) are trying to launch these products and compete. ”