VanEck to the SEC: why yes to Coinbase, and no to Bitcoin ETFs?

Last week VanEck head of crypto research, Matthew Sigel, posted a lengthy reflection on his personal Twitter profile in which he questioned why the SEC continues to stubbornly refuse to approve an ETF on spot Bitcoin. 

In fact, despite the fact that the US government agency that oversees the securities market has already approved several ETFs based on Bitcoin futures contracts, it has yet to approve any collateralized in BTC directly. 

Sigel’s question

Although these are indeed two different funds, especially in terms of collateral and its custody, Sigel points out that the SEC in 2021 approved the IPO of Coinbase, i.e., a company that holds Bitcoin and other cryptocurrencies on behalf of their clients. 

In other words, the issue of BTC custody, which apparently prevents the SEC from approving an ETF on spot Bitcoin, did not prevent the same company from approving Coinbase’s listing. 

Moreover, Sigel points out that self-custody of tokens is not the best solution in all circumstances, so it can sometimes be convenient to outsource token custody to third parties qualified for such a purpose. 

He also points out that VanEck made his first application to the SEC for approval of an ETF based on Bitcoin derivatives in 2017. 

To be fair, VanEck’s own head of crypto research admits that the reason given by the SEC for its refusal to want to approve an ETF on spot Bitcoin is that there would be risks of fraud and manipulation precisely in the BTC spot market due to the lack of a comprehensive oversight sharing agreement among crypto exchanges, whose prices determine the ETF’s benchmark. 

BlackRock’s turning point

In this regard, Sigel speculates that BlackRock’s new attempt to get the SEC to approve an ETF on spot Bitcoin may be due to some form of cooperation with Coinbase, or a change of course by the exchange. 

Indeed, it is worth noting that for the past few months the SEC has been going after the largest US crypto exchange directly, and some kind of settlement may eventually emerge from the ongoing lawsuit. 

Sigel’s idea is that working as a custodian for a large issuer like Blackrock may have convinced Coinbase to share data that it previously did not want to share. He also believes it is possible at this point that surveillance arrangements could also be systematized with the participation of other exchanges. 

In other words, BlackRock, with its enormous commercial and financial power, may have convinced crypto exchanges, with Coinbase primarily, to step forward to make the cryptocurrency spot markets more overseeable and less manipulable, so much so that one of the reasons for the SEC’s disapproval has been dropped. 

At this point, it could theoretically be slightly more likely that the SEC will sooner or later also approve an ETF on spot Bitcoin. 

VanEck: the importance of the spot Bitcoin ETF

An ETF collateralized in BTC could have a significant impact on crypto markets. 

The point is that, unlike derivatives-based ETFs, such a fund would have to buy enough BTC in the market to cover all the shares issued. 

So if it were to be very successful, it would have to greatly increase both the number of shares issued and consequently the volume of BTC to hold as collateral. 

Given that BlackRock is a giant with about 8.6 trillion in AUM (Assets Under Management), and given that the entire market capitalization of Bitcoin does not reach $600 billion, it is not unreasonable to imagine that ETFs on spot Bitcoin could require massive volumes of BTC purchases in the spot markets to the point where they could even affect its prices. 

Moreover, if the SEC approves BlackRock’s ETF, it may then be forced to approve others as well, and this could trigger a significant rise in the price of BTC. 

However, it all depends on the success of these ETFs in the market, and especially on how many investors still absent in the crypto markets they could attract. 

It is worth noting that the hypothesis circulating these days is that this could all happen in the very year of Bitcoin’s fourth halving, namely 2024. Following all three previous halvings, a bull run was triggered the very next year.