Cathie Wood’s ARK Bitcoin ETF is getting closer

Cathie Wood’s ARK has submitted an updated prospectus version of its spot Bitcoin ETF to the SEC. 

A few weeks ago the SEC itself had sent an e-mail to all applicants asking for comments and questions on applications for the issuance of spot Bitcoin ETFs, so it is likely that this new version of Ark 21Shares Bitcoin ETF prospectus was sent as a response to that request. 

Cathie Wood’s new prospectus for their Bitcoin ETF

Bloomberg Senior Analyst Eric Balchunas reports that there are differences from the original prospectus, although they are only technical details. 

However, they are important details, because they really seem to have been added in response to the SEC’s comments, such as the fact that the Trust’s BTCs will be kept by the Custodian separate from those of other companies or other clients in special and specific public addresses on the blockchain. 

This way, for example, it will always be possible to go and publicly verify how many there will be. 

In total, the new prospectus is a full five pages longer, although additions have been scattered throughout. Balchunas says this suggests that ARK received the SEC‘s comments and provided responses to all of them, adding the missing details. 

He writes: 

“now put ball back in SEC’s court. IMO good sign, solid progress.”

However, he also adds that there will probably be more comments from the agency, and other versions of the prospectus with even more details, so approval should not be imminent. However, this dynamic should be seen as positive, because in the past instead the SEC had simply rejected all applications without ever even starting a similar dialogue with the applicants. 

The Grayscale issue

While the Ark 21Shares Bitcoin ETF is the first spot Bitcoin ETF on which the SEC is expected to make a final ruling, by January 10, 2024, the Grayscale issue has an even closer deadline: tomorrow, Friday, October 13, 2023. 

The Grayscale issue relates to the request by the operator of the Grayscale Bitcoin Trust (GBTC) to convert it into an ETF on spot Bitcoin. 

The SEC has already rejected this request, but the New York court ruled against it, instead agreeing with Grayscale. 

Well tomorrow is the deadline to file an appeal against that ruling, so if the SEC does not file it would mean that it accepts it unopposed. 

The fact is that this ruling in fact enjoins the SEC to approve Grayscale’s application, so if the SEC accepts it it means that sooner or later it will end up approving it. 

By now, the markets are giving SEC approval of spot Bitcoin ETFs as likely, so much so that the discount to GBTC’s NAV is shrinking fairly quickly. 

By the end of December, GBTC’s NAV was as much as 48% higher than the market capitalization of the fund’s shares, although by April the discount to NAV had already recovered to -35%. 

As of mid-July it had begun a new ascent, bringing it to -24%. 

After the New York court ruling it had suddenly jumped to -18%, and now it has risen further to -16%. 

On the other hand, if the SEC were to approve its conversion into ETFs that discount could go to zero. 

The approval of ETFs

There are two hypotheses circulating. 

The first is that the SEC by now can no longer refuse to approve applications for the issuance of ETFs on Bitcoin spot that have all the requirements in place, following the New York court’s conviction. 

The second is that it could approve them all at once, so as not to give anyone the first-mover advantage. 

In fact, these applications all have different deadlines, so in theory they could also be approved or rejected at different times between now and May 2024. 

The first final deadline, by which the SEC is bound to issue a verdict, is 10 January 2024, and it seems likely that, as always, the SEC will take all the time available. 

So the prediction that the markets seem to think is most likely is that by 10 January next year, or even in December of this year, the SEC may approve en bloc all eligible applications for spot Bitcoin ETFs. 

On the other hand, it seems unlikely that such approval could come sooner, that is, by the end of October or in November. 

In theory, however, rejections could also come, but at this time it seems unlikely that the SEC will be able to oppose all of them. In fact, the comments and questions it sends to applicants are precisely to get them to add any missing details to their applications so that the prospectuses are suitable for approval.