Bitcoin ETF Approval: A 90% Chance or a Regulatory Rug Pull?


Bitcoin ETF Approval: A 90% Chance or a Regulatory Rug Pull?
© Getty Images/Dan Kitwood

The potential approval of a spot Bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) has stirred a buzz in the financial community. Bloomberg ETF analyst Eric Balchunas, alongside his colleague James Seyffart, assesses the likelihood of this groundbreaking development.

According to Balchunas, the chances of approval by January 10 stand at a strong 90%, yet this figure has not been increased due to concerns that the SEC might seek more time for consideration rather than outright rejection.

"This isn't about the probability of a flat-out denial, but rather the SEC needing more time to deliberate," Balchunas suggested. His cautious optimism reflects the complex interplay between regulatory oversight and innovative financial instruments like Bitcoin ETFs.

The SEC's Deliberation: A Critical Juncture

Balchunas pointed out the substantial efforts invested by the SEC and Bitcoin ETF issuers in this process, indicating that an outright rejection at this stage seems improbable.

"This would be the rug pull of the decade," he commented, highlighting the high stakes involved. The work poured into this initiative, especially during the holiday season, exemplifies the commitment of all parties to see this through.

Furthermore, Vetle Lunde, an analyst from crypto research firm K33 Research, echoed Balchunas's sentiment but placed the likelihood of rejection even lower, at just 5%. This aligns with the broader optimism within the crypto community regarding the SEC's impending decision.

Potential Fallout of a Rejection

Despite the high probability of approval, the scenario of a denial is not entirely off the table. Balchunas believes that if the SEC were to issue an outright denial, it would not spell the end of efforts to establish a Bitcoin ETF.

Drawing parallels with the response of crypto asset manager Grayscale, he anticipates immediate and robust legal challenges against the SEC.

"People have invested too much and tried too hard to simply give up," Balchunas stated.

"In the event of a denial, I foresee immediate action, rather than a period of inactivity. There would be significant pushback."

A notable concern raised in recent discussions is Bitcoin's decentralized nature and its potential to bypass traditional financial channels.

This aspect has been cited as a reason why Bitcoin might be appealing to authoritarian regimes seeking to evade sanctions and exert greater control over their citizens. Such considerations add layers of complexity to the SEC's decision-making process.

Implications of the SEC's Decision

The SEC's verdict on the Bitcoin ETF holds significant implications for the cryptocurrency market and the broader financial landscape. An approval could herald a new era of legitimacy and integration of cryptocurrencies into mainstream finance.

Conversely, a rejection, although less likely, would underscore the regulatory challenges that cryptocurrencies continue to face. The decision is a litmus test for the SEC's stance on innovative financial products and its readiness to embrace the evolving dynamics of the global financial system. It also signals the regulator's approach to balancing innovation with consumer protection and market stability.