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(Kitco News) -
U.S. banking giant JPMorgan said in a report released Thursday that even if the Securities and Exchange Commission (SEC) approves one or more of the recent applications for a spot bitcoin exchange-traded fund (ETF), it won’t have a major impact on crypto markets and won’t draw major interest from investors.
“The potential approval of physically backed bitcoin ETFs by the SEC is unlikely to be a game changer for crypto markets,” the analysts wrote. “Spot bitcoin ETFs [have] existed for some time outside the U.S., in Canada and Europe, but have failed to attract large investor interest.”
BlackRock, the world’s largest asset manager, resubmitted its spot Bitcoin (BTC) exchange-traded fund (ETF) application following reports that the Securities and Exchange Commission (SEC) returned the application for being “inadequate” because it failed to specify the exchange the firm would be partnering with for its surveillance-sharing agreement (SSA). The updated application, which was filed by Nasdaq with the SEC on June 30, named crypto exchange Coinbase as the SSA partner.
Multiple other firms, including Fidelity, ARK, WisdomTree, VanEck and Invesco/Galaxy, have also re-filed their spot bitcoin ETF applications, naming Coinbase as the SSA exchange, with alternative asset management firm Valkyrie the latest to re-file on July 3.
“Bitcoin funds overall, including futures based and physically backed funds, have attracted little investor interest since Q2 2021, also failing to benefit from investor outflows from gold ETFs over the past year or so,” the JPMorgan report said.
The analysts noted that while spot bitcoin ETFs remove some of the complexities around direct custody and transfer of BTC and the risk associated with futures-based products, these advantages are rather marginal.
“Spot ETFs are more likely than futures based ETFs to reflect real time supply and demand,” they acknowledged, “and their approval in the U.S. would bring more liquidity and enhance price transparency in spot bitcoin markets.”
The analysts added that the introduction of spot bitcoin ETFs could also provoke a migration of trading activity and liquidity away from U.S. bitcoin futures markets “to the extent spot bitcoin ETFs replace futures-based bitcoin ETFs.”
The SEC has a long history of rejecting spot BTC ETFs going all the way back to 2017. The regulator has repeatedly said that these products were vulnerable to fraud and market manipulation.
The SEC has shown itself more open to Bitcoin futures ETFs, however, granting approval to at least a half-dozen such investment products. On June 23, the regulator even approved the Volatility Shares 2x Bitcoin Strategy ETF (BITX), the first leveraged Bitcoin futures ETF to launch in the U.S. market.
Many market participants see the passage of a spot Bitcoin ETF as a watershed moment for the crypto industry, as it would give institutional investors and retirement accounts easier access to the top crypto since it could be purchased through brokerage accounts as easily as shares of stock.
