The cryptocurrency industry eagerly awaits the next decision from the Securities and Exchange Commission after a U.S. court ruling a week ago regarding Grayscale Investments. Experts believe the ruling moves the U.S. another step closer to getting its first bitcoin exchange traded fund.
"We're really excited about some of the breakthroughs in the regulatory landscape when it comes to crypto," Cathie Wood, ARK Invest CEO said during the "In The Know with Cathie Wood" podcast episode released late Friday.
"It certainly has been a tremendous week, in the news, for the cryptocurrency and the exchange traded fund industry," said Tom Staudt, ARK Invest COO.
A spot bitcoin ETF would allow investors to gain exposure to bitcoin on traditional markets without having to directly own the cryptocurrency. Staudt pointed out that the court decision did not say the fund had to be allowed to convert to an ETF nor did it grant approval by itself. "It simply said the SEC has to go back and review its ruling on that fund."
Crypto fund manager Grayscale Investments applied for its Grayscale Bitcoin Trust to be converted into an ETF in October 2021. The SEC rejected the application in June 2022, saying it failed to answer the regulators questions about preventing market manipulation, among other concerns.
"We certainly saw the price of bitcoin jump up on the announcement, a lot of excitement, Staudt said. "We've since seen that come back in. Bitcoin leapt as high as $28,000 late Tuesday from its $26,000 level before the announcement. It fell back to $26,000 by Thursday, and faded below $26,000 early Tuesday.
Part of the pullback from last week was due to the SEC delaying decisions on several bitcoin ETF applications from other funds, Staudt said.
"That's not unexpected," Staudt said. "It's been consistent from the SEC as they say that it's appropriate to designate longer periods of time with which to consider the actions and rule changes in front of them."
Next Steps
As for what's next, there's more questions than answers in the market, according to Staudt. The SEC could appeal the decision, although its unclear if that's the avenue they will pursue. Some have speculated that the SEC could pursue denials for other reasons, Staudt said. The SEC could disapprove of other products it greenlighted to get in-line with the Grayscale ruling. "While we think that is unlikely, that is one potential outcome," Staudt said.
"Probably the most likely is they are working on timetables and plans for the eventual approval after considerations, but again, a lot of uncertainty at this point," Staudt said.
In ARKs view, this was a "big breakthrough and monumental for the crypto industry," Staudt said. ARK reiterated its view that U.S. investors need the ability to gain exposure to crypto through a regulated spot ETF product. "More than ever, we think the writing is on the wall that is coming."
Bitcoin Fundamentals
"Bitcoin has been trading in a band between $25,000 and $29,000 for the last several months with volatility dropping to a six-year low," said Yassine Elmandjra, ARK Crypto Lead. Elmandjra noted Bitcoin rejected its 200-week moving average despite the Grayscale news and ETF chatter.
In spite of the rejection, there isn't really anything that indicates weak holder behavior, Elmandjra said. "The market on average is still trading at a profit and fundamentals do remain strong."
Bitcoin Price Action
Bitcoin traded below $25,700 late Tuesday, sliding off its Monday high near $25,940. Ethereum, the world's second-largest crypto, traded around $1,630 after falling from its peak of $1,740 from last week.
Coinbase ticked lower Tuesday after COIN stock pared its gains to 5% last week. The crypto exchange bolted nearly 15% last Tuesday following the court decision.
Bitcoin miners Hut 8, Riot Platforms and Marathon Digital eased to start the week. Shares rallied between 4.4% and 13.7% last week.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
