Big news in the world of cryptocurrencies arrived Tuesday when D.C. Circuit Court of Appeals Judge Neomi Rao ruled that the Securities and Exchange Commission (SEC) must abandon its rejection of Grayscale’s application to convert the popular Grayscale Bitcoin Trust (GBTC) to the exchange traded fund structure.
It remains to be seen whether or not the ruling compels the SEC to finally approve spot bitcoin ETFs – arguably the most desired product in U.S. ETF industry history – but experts believe that’s exactly what the ruling implies. After all, Rao wrote her in her opinion that it’s “arbitrary and capricious” that the SEC continues stifling GBTC conversion efforts after approving futures-based bitcoin ETFs several years ago.
Indeed, the ruling is “kind of a big deal” and the reasoning behind that statement is easy to understand. Score of ETF issuers have filed applications for spot bitcoin ETFs. Should that structure gain regulatory approval, those funds will create substantial demand for the largest cryptocurrency – pertinent because bitcoin supply is fixed at 21 million.
Translation: New demand for bitcoin could lead to more constrained supply, in turn sending prices higher. Should that scenario play out as expected, other established crypto-correlated ETFs stand to benefit. Here are a few to consider.
Invesco Galaxy Crypto Economy ETF (SATO)
The Invesco Galaxy Crypto Economy ETF (SATO) already proved its leverage to the possibility of a spot bitcoin ETF coming to market, surging nearly 13% on Tuesday following Judge Rao’s ruling. SATO, which follows the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, allocates 15.70% of its weight, making a predictable, potent winner should the index fund convert to ETF status.
Additionally, the bulk of the rest of the SATO lineup are bitcoin miners equities – stocks that are intimately correlated to the cryptocurrency’s price action. In other words, there’s a lot to like with SATO should spot bitcoin ETFs be approved.
“It’s excellent that the judge in the Greyscale vs SEC case was able to see the obvious correlation between Bitcoin futures and spot price. Products like Grayscale’s holdings have converted to ETFs in other commodity markets, and it makes no sense to treat crypto differently,” said Greg Moritz, Chief Operating Officer at AltTab Capital, in a statement. “Rules for financial markets need to be based on data, not arbitrary and capricious sentiment toward a legitimate and growing asset class.”
Bitwise Crypto Industry Innovators ETF (BITQ)
The Bitwise Crypto Industry Innovators ETF (BITQ) is an index-based ETF that turned two years old in May. Its approach is comparable to that of SATO in that it’s chock full of crypto-correlated stocks, including miners and exchange operators such as Coinbase (COIN).
Indeed, BITQ’s lineup is small with just 27 holdings, but it’s potentially mighty when it comes to leverage to a spot bitcoin ETF coming to fruition –something that could happen.
“We don’t believe the SEC will act as kingmaker and the most likely outcome is a block approval of applications that meet requirements, probably in Q1’24,” noted Tim Bevan, CEO at ETC Group. “The level of pent up institutional and retail demand in the US is significant and we expect this to have a positive impact on the price of Bitcoin as can be seen from today’s price reaction, as well as further accelerate the global trend towards acknowledging crypto as a new asset class.”
Global X Blockchain ETF (BKCH)
The Global X Blockchain ETF (BKCH) follows the Solactive Blockchain Index and as its name implies, its point of emphasis is blockchain technology. The good news there is blockchain has expansive applications beyond crypto, but BKCH still has credibility as a spot bitcoin ETF beneficiary.
That much is confirmed by the fact that the Global X ETF is up 7.45% over the past week, indicating it benefit from the appellate court ruling.
“This is a landmark legal win for crypto against the US regulator,” said deVere Group CEO Nigel Green in a new report. “The court’s decision destroys the SEC’s central argument for rejecting every spot Bitcoin ETF over the last few years. This win paves the way for bitcoin ETFs.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
