Last night the Securities and Exchange Commission (SEC) finally approved the first spot Bitcoin ETFs, giving a simultaneous nod to 11 applications.

SEC Chair Gary Gensler acknowledged the August 2023 Court of Appeals ruling, which stated that the SEC was wrong to block the Grayscale Bitcoin Trust from converting to an exchange traded fund (ETF). The judge described the denial as “arbitrary and capricious”.

Referring to the judgment, Chair Gensler wrote, “Based on these circumstances and those discussed more fully in the approval order, I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares.” 

However, he noted the differences between metal commodity-based ETFs and Bitcoin ETFs. “Though we’re merit neutral, I’d note that the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity,” he wrote.

Republican Commissioners Peirce and Uyeda, while supportive of the ETF approvals, questioned whether the SEC is merit neutral. Commissioner Uyeda wrote, “Even though the Commission is approving the listing applications in this instance, the underlying analytical approach effectively amounts to merit regulation. Thus, the flawed reasoning in the Approval Order could reverberate for years to come.”

Commissioner Pierce observed, “Rather than admitting error, (the SEC) offers a weak explanation for its change of heart. In the past, the Commission, allowing our prejudice against the underlying asset to get in the way, has rejected applications on the basis that the bitcoin market was still immature and that there were outstanding manipulation concerns.” She added, “The only material change since we last denied a similar application was a judicial rebuke.”

Democrat Commissioner Crenshaw dissented on the approval on the grounds that spot Bitcoin prices cannot be trusted, citing research by Forbes Digital Assets.

Bitcoin ETF competition

One of Commissioner Uyeda’s criticisms was around the last minute approval process, waiving 30 day notice requirements for changes to ETF applications. He disagreed with the reasoning given for accelerating the processes. “Perhaps the actual motivation for accelerating the approval is to avoid a first-mover advantage whereby the first spot bitcoin ETP to market acquires the lion’s share of investor assets,” he wrote. “In my view, the Commission could have formed its “good cause” finding by referencing the potential anti-competitive results.”

The 11 ETFs approved are: