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SEC puts spot crypto ETFs on ice again

Fri, 09/08/2023 - 07:26

After a truly awful 2021-2022, Bitcoin has made an impressive comeback in 2023 to gain over 50% since January alone. Naturally, this has brought crypto well and truly back onto the radar of institutional fund managers as they look to add digital assets back into their portfolios after a long hiatus. Indeed, both BTC and Solana have seen particularly powerful inflows in H1 2023 and beyond, and the market looks set to continue its bullish trend to the end of the year. However, one vehicle that would supercharge institutional investment into crypto has been lingering on the horizon for some time and looks to have been pushed back at least another month.

That's right, spot Bitcoin ETFs, which would open the floodgates for a variety of similar products for the full gamut of cryptocurrencies, won't be approved until late October at the earliest following the SEC's move to postpone its decision on exchange-traded fund applications filed earlier this year by firms including BlackRock, WisdomTree, Invesco Galaxy, Wise Origin, VanEck and Valkyrie Digital Assets.

Apart from institutional investment, it is also believed that such ETF instruments will drive adoption from retail investors who don't feel comfortable technically with buying and selling physical crypto. So, why the delay, what is the timeline for the approval of these groundbreaking instruments, and more importantly, what will likely be their effect on the wider digital assets market?

Are we there yet?

For those who haven't been following the space especially closely, these attempts to have Bitcoin ETFs listed have become a never-ending saga of sorts. From when it first receives an application, the SEC has a total of 240 days to make a final decision to approve or reject. In the past, the regulator's staff have often taken advantage of every possible comment and review period to delay making their final decision until those 240 days have elapsed. One of the first firms to make an application was the eminent Cathy Wood's Ark Invest Group, which had originally believed that its initiative would be rewarded by the US regulator. 

However, several commenters have pointed out that the SEC's decision to make full use of its 240-day review period is to ensure that no single provider has a significant advantage over its competitors, opening that the regulator will likely approve all applications at the same time to avoid a monopoly or oligarchy arising in the space. If it does happen that all of these funds are launched in Q4 2023, we can expect the crypto market to respond in a big way as capital flows rapidly into Bitcoin.

Never underestimate crypto

If the past 5-10 years of boom-and-bust cycles have taught us anything, it's that digital currencies — and Bitcoin in particular — can do things many of us thought impossible. Now, as a spot Bitcoin ETF looms, it appears as if many are not giving this huge development the respect it deserves. In fact, analysts from crypto research firm K33 (formerly Arcane Research) have said that the ability of such an approval to drive up BTC prices significantly is currently being massively underestimated by the market. K33 senior analyst Veste Lunde has stated that, while Bitcoin had all but given up its gains amid Grayscale's legal victory over the SEC, the approval of any spot Bitcoin ETF would "attract enormous inflows" and significantly increase buying pressure across the cryptocurrency market.

On the contrary, if the applications are rejected, they predict the impact on prices to be "negligible". And as the next BTC halving approaches in early 2024, it's hard to see how BTC can fail to grow over the longer term. Meanwhile, the K33 team believes that the biggest gainer in the medium term will be Ethereum, with "strong momentum" predicted following its futures-based ETF listing. ETH is already up 35% YTD, and the analysts suggest these gains could accelerate in Q4.

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