Cryptocurrency exchange Coinbase is increasingly confident that a bitcoin exchange-traded fund (ETF) will soon be approved by the US Securities and Exchange Commission (SEC), following the regulator’s recent court loss blocking Grayscale’s bitcoin fund from becoming an ETF.
Paul Grewal, Coinbase’s chief legal officer, told CNBC that the company is “quite hopeful” that pending bitcoin ETF applications will now be approved by the SEC. He highlighted that they should be granted under the law, referring to the Appeals Court ruling that the SEC had no basis to deny Grayscale’s bid to convert its Grayscale Bitcoin Trust (GBTC) into an ETF.
The SEC decided last week not to appeal that court decision, likely clearing the path for a bitcoin ETF to be greenlit in the coming months. While Grewal did not give a timeline, he expressed confidence the SEC will now approve a bitcoin ETF application soon since it cannot arbitrarily reject them following its court loss.
A bitcoin ETF would allow mainstream investors to gain exposure to the cryptocurrency through investing in the fund, without having to directly purchase and hold bitcoin. This could benefit crypto exchanges like Coinbase which are commonly held assets in portfolios aiming to give investors crypto exposure.
However, Grayscale still faces some challenges converting its popular GBTC fund into an ETF. Its parent company Digital Currency Group (DCG), along with Genesis Trading and Gemini crypto exchange, were recently accused in a lawsuit by New York’s attorney general of defrauding investors to the tune of over $1 billion.
Nevertheless, Grewal sounded positive that additional bitcoin ETF products will be coming online soon as the SEC complies with court rulings requiring it to evaluate ETF applications neutrally, solely based on their merits.
Bitcoin has stealthily risen around 72% so far this year, recovering strongly after huge declines in 2022. Driving this comeback is renewed investor interest thanks to expectations of fewer Fed interest rate hikes, and hype building ahead of bitcoin’s next “halving” event in 2024 which will reduce bitcoin mining rewards by 50%, constricting supply.
However, crypto trading volumes have declined recently, as retail investors remain gun-shy after massive crashes of large players like FTX, BlockFi and Three Arrows Capital. The collapses have bred distrust of centralized crypto intermediaries.
Grewal expressed encouragement that “bad actors” in crypto like FTX are being held criminally accountable for alleged multibillion dollar fraud. He believes this will renew consumer interest in cryptocurrency investments.
FTX filed for bankruptcy last year amid a liquidity crunch after investors fled the platform over concerns on its financial stability. Its founder Sam Bankman-Fried was criminally charged by US prosecutors over allegations he defrauded FTX customers and investors out of billions. Bankman-Fried has pleaded not guilty and is currently facing trial.
While the crypto winter persists, Grewal foresees developments on the horizon that will entice investors back into digital assets. The expected approval of a bitcoin ETF could be one catalyst. With blue chip financial giants like Fidelity Investments, CME Group and others applying for bitcoin ETFs, credibility could be lent to crypto as an asset class.
As bitcoin and the broader crypto industry aim to rebuild trust, regulators are focused on rooting out bad actors and holding companies to account for violating securities laws. This could pave the way for institutional investors to gain comfort with crypto, with an ETF providing easy exposure.
If the SEC delivers on expectations and approves a bitcoin ETF application in 2023, it would cap a multi-year effort by the industry and represent a major milestone in mainstream acceptance of cryptocurrencies. For exchanges like Coinbase seeking to broaden their client bases, it could provide a crucial on-ramp for the next generation of crypto investors.