The U.S. circuit court in Washington D.C. has recently ordered the Securities and Exchange Commission (SEC) to reconsider its rejection of a Bitcoin exchange-traded fund (ETF) application by Grayscale, a leading crypto hedge fund. This development has sparked speculation among industry investors and insiders about the potential impact on the price of Bitcoin and other cryptocurrencies. While approval of a Bitcoin ETF could lead to a surge in prices, the rejection of such an ETF could result in a significant downturn.
Many industry experts anticipate a rapid increase in the price of Bitcoin if the SEC approves a Bitcoin ETF. According to DeCryptoFi founder and CEO Nicholas Scherling, the approval would cause Bitcoin’s price to “pump quickly.” This sentiment is shared by others who believe that an ETF approval would signal greater institutional acceptance of cryptocurrencies and attract a wave of new investors. The increased demand resulting from this influx of capital could drive the price of Bitcoin and other crypto assets to new heights.
Conversely, the rejection of a Bitcoin ETF application by the SEC could have severe consequences for the crypto market. Nate Geraci, president of ETF Store and co-founder of ETF Institute, warns that a rejection in January could trigger a significant downturn for cryptocurrencies, referring to it as one of the “bigger rug pulls in crypto history.” The market’s reaction to such a rejection could lead to a drop in prices and a period of uncertainty and volatility.
The SEC’s reluctance to approve a Bitcoin ETF is evident in its rejection of previous applications. The commission has shown a preference for “cash create” ETFs rather than “in-kind” structured ETFs. By insisting on this form, the SEC is aiming to mitigate tax liabilities for issuers and potentially increase fees for clients. This ongoing battle between fund providers and regulators has the potential to delay the approval of a Bitcoin ETF beyond January.
The Potential Impact on Trading Fees
Analysts believe that a Bitcoin ETF could have a significant impact on trading fees for cryptocurrencies. Eric Balchunas, senior Bloomberg ETF analyst, suggests that a crypto ETF would reduce high trading fees, which can reach as high as 0.6% on popular exchanges like Coinbase. With an average fee of 0.01% for ETF trading, Balchunas refers to the potential reduction as “unleashing the Power of One (basis point).” While this may be advantageous for investors, it could lead to a financial setback for crypto exchanges, potentially resulting in a “bloodbath.”
The SEC’s decision regarding the approval or rejection of a Bitcoin ETF has significant implications for the crypto market. While an approval could drive prices to new heights and attract institutional investors, a rejection could lead to a downturn and heightened volatility. The SEC’s demands for “cash create” ETFs and the potential impact on tax liabilities and fees further complicates the process. Investors and industry insiders eagerly await the SEC’s final decision and its subsequent effects on the crypto market.