Bitcoin Drops 3% After SEC Postpones Spot ETF Ruling

Bitcoin witnessed a 3% drop on Friday in New York as the Securities and Exchange Commission (SEC) announced it would delay the consideration of exchange-traded fund (ETF) applications tied to spot bitcoin prices until mid-October.

This decline effectively wiped out the weekly gains driven by a legal victory for the ETF aspirant Grayscale, which seeks to convert a bitcoin trust into an exchange-traded format.

As per CoinGecko, the leading cryptocurrency is currently valued at $25,528.

The SEC’s decision to postpone the broader ETF applications essentially maintains the status quo,” commented Fred Pye, CEO of Canadian digital asset investment firm 3iQ.

The overall cryptocurrency market also contracted by 3% over 24 hours, with a total valuation of $1.08 trillion. Ether, the second-largest cryptocurrency by market capitalization, experienced a 3.2% drop, settling at $1,611.

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Conor Ryder, head of research at Portugal-based stablecoin issuer Ethena Labs, noted, “There appears to be uncertainty about the conversion date now, and markets have retraced as a result, possibly waiting for more clarity after a potential overreaction.”

Bitcoin had surged by 6% on Tuesday, adding $50 billion to its market capitalization.

This surge followed a federal appeals court ruling that deemed the SEC’s rejection of Grayscale’s request to transform its bitcoin trust (GBTC) into an ETF as “arbitrary and capricious.”

This rally had lifted the cryptocurrency market’s value to $1.15 trillion.

The Grayscale Bitcoin Trust has persistently traded at a discount to the net asset value of the cryptocurrency it holds since early 2021.

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Converting it into an ETF would effectively eliminate most of this discount. As of Thursday’s close, the discount stood at 20.6%, according to YCharts, wider than the 18.1% following Tuesday’s court decision but significantly narrower than the nearly 50% recorded late last year.

The SEC has never permitted ETFs based on spot bitcoin prices, citing concerns about the market’s riskiness for retail investors. The agency does allow funds based on futures, which offer surveillance safeguards.

However, since their prices ultimately rely on the spot market, the SEC’s stance was criticized as irrational by a three-judge appeals court panel.

Pressure has been mounting on the government to approve spot ETFs following multiple providers applying for permission to do so in June. This influx led the cryptocurrency market’s value to nearly $1.3 trillion in July.

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Still, the excitement dwindled as the SEC showed no intent to act on applications from financial giants like BlackRock, VanEck, and Fidelity. Tuesday’s Grayscale decision revitalized the market, but the subsequent SEC timeline announcement tempered enthusiasm.

Andy Baehr, managing director of CoinDesk Indices, remarked that regulatory developments have played a pivotal role in bitcoin price movements this summer.

“Given low trading volumes and a sluggish market, regulatory news has been one of the major drivers of price action,” he stated. “Right now, regulatory news is driving the story.”

Bitwise Investments, a digital asset manager, opted to withdraw its proposal for a bitcoin and ether fund amid these regulatory uncertainties, although it did not provide a specific reason for its decision.

(Source: Forbes)

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