The topic of bitcoin exchange-traded funds has been a hot one in the U.S. for years. The Securities and Exchange Commission has repeatedly blocked every attempt to bring a spot bitcoin ETF to market in the U.S. In fact, the agency rejected VanEck’s application for a spot bitcoin ETF for the third time in March.

There is one bitcoin futures ETF in the U.S. that celebrated its one-year anniversary toward the end of last year. However, what most investors are really waiting for is a spot bitcoin ETF. The SEC rejected numerous proposals for spot bitcoin ETFs in June 2022 and November 2021, citing concerns about market manipulation.

Futures Versus Spot ETFs

It’s important to understand the differences between bitcoin futures ETFs and spot ETFs. The vast majority of bitcoin ETFs utilize futures in an attempt to stimulate the performance of the cryptocurrency.

Futures can provide protection for investors if used correctly, enabling them to lock in particular dates to purchase bitcoin by and set prices at which they want to buy the cryptocurrency. On the other hand, spot ETFs provide investors with direct ownership of the underlying asset.

Thus, the critical difference between the futures and spot models stems from the way bitcoin is traded. Futures ETFs buy and sell contracts that give the right but not the obligation to purchase the underlying asset at a particular price on or before a set date.

Meanwhile, spot ETFs actually purchase the underlying asset directly. Given the difficulties of trading bitcoin directly, especially since the downfall of FTX and other crypto exchanges, many investors would prefer to buy cryptocurrency via a spot ETF. However, the SEC has been adamant about keeping spot bitcoin ETFs out of the U.S.

Some investors consider bitcoin futures ETFs inferior to spot ETFs because funds that hold the futures to price can underperform versus the underlying asset’s price. On the other hand, spot ETFs track the price of the underlying asset, providing more exacting exposure to it, although they lack the protections offered by futures ETFs.

Additionally, futures generally are more expensive to trade than the underlying asset, although sometimes they are cheaper to trade. Of course, investor sentiment can drive both futures and bitcoin itself, and not necessarily in the same direction.

A Decade Of Denials For Spot Bitcoin ETFs

January marked the 10-year anniversary of the first filing for a bitcoin ETF in the U.S. The Winklevoss twins had already owned a large amount of bitcoin when they proposed the Winklevoss Bitcoin Trust ETF.

At the time of their ETF application, bitcoin was trading at around $100 with a total market capitalization of merely $1 billion. Only months after the filing, the cryptocurrency’s price shot up to $1,000. Today, it’s trading at well over $30,000 — less than half of its all-time high.

TrustNodes pointed out some uncanny timing around past milestone bitcoin-related approvals. The site also offered a prediction for when bitcoin might reach its next high—and when the SEC might finally approve the first spot bitcoin ETF in the U.S.

According to TrustNodes, the CME bitcoin futures were approved in December 2017, right at the top of the bitcoin price at that time. Of course, one occurrence is coincidence and unimportant, but it recurred in October 2021. The SEC approved a paper bitcoin ETF then, again at the cycle’s peak.

TrustNodes described this “seemingly uncanny ability to time to top” as “a curiosity.” The site also suggested that the first bitcoin spot ETF could be approved at the top of the next cycle. TrustNodes sees the next top potentially occurring in November 2025.

First U.S. Bitcoin ETF Loses Over $1 Billion In First Year

Unfortunately, the first bitcoin ETF in the U.S., the ProShares Bitcoin Strategy Fund launched in October 2021, plummeted 70% in its first year. As a result, the fund burned through about $1.2 billion in investors’ cash — despite being the most successful new ETF ever.

The ProShares fund garnered over $1 billion in its first week of trading on the New York Stock Exchange. However, data from Morningstar Direct provided to the Financial Times revealed that the fund had lost more investor dollars than any other ETF debut.

The 70% plunge also made the ProShares Bitcoin Strategy Fund the sixth-worst-performing debut ETF of its kind ever, likely due to its launch in the middle of arguably the worst crypto winter in the history of bitcoin. Over its first year of existence, the bitcoin fund captured $1.8 billion in net inflows. However, the fund’s assets had plummeted to $624 million as of October 2022.

Grayscale Faces Off With SEC Over Spot Bitcoin ETF

Of course, efforts to launch a spot bitcoin ETF in the U.S. continue. Such a move indicates greater democratization of investing in cryptocurrency because it becomes easily accessible for equity investors.

Grayscale is now battling the SEC in court in an attempt to convert its Grayscale Bitcoin Trust into an ETF. Regulators rejected the firm’s application to convert the trust into a spot bitcoin ETF, so it took the agency to court over the matter.

Grayscale argued that the bitcoin futures ETFs already approved by the SEC are fundamentally the same as the spot bitcoin ETF it wants to transform the trust into. In an interview with CoinDesk, Grayscale’s sister company, Chief Legal Officer Craig Salm said he sees several potential outcomes if the federal court rules in their favor.

The Grayscale executive noted that futures “derive their pricing from the underlying spot markets” because they are derivatives of spot bitcoin. Thus, he argued that since the SEC has repeatedly approved bitcoin futures trading, it should also approve spot bitcoin ETFs as well.

Digging Into Grayscale’s Lawsuit

Salm questioned if the regulator is “acting arbitrarily and capriciously in violation of the Administrative Procedure Act.” He also called into question whether the SEC is violating the Exchange Act by “discriminating against issuers” through the approvals of bitcoin futures and repeated denials of spot bitcoin.

In March, a panel of DC Circuit Court of Appeals judges appeared to agree with the argument put forth by Grayscale. It’s expected to issue a ruling in three to 12 months.

According to Salm, if the court rules in favor of Grayscale, the commission may have to approve the Grayscale Bitcoin Trust as a spot bitcoin ETF. It may also have to approve the applications for other spot ETFs from other companies it rejected, like VanEck.

However, Salm also said the SEC might deny Grayscale’s attempt to change its Bitcoin Trust into a spot ETF again, but “on some new basis.” Alternatively, he warned that the commission might even rescind the bitcoin futures ETFs it had previously approved.

Salm explained that this last outcome might be the result if the SEC decides to start treating all bitcoin ETF products the same. However, he also thinks this outcome is unlikely due to how much disruption it would cause and the sudden removal of protections for investors.

The Grayscale executive also noted that the SEC has already said it doesn’t see bitcoin as a security. Thus, he believes the Commodity Futures Trading Commission should be the one making decisions about bitcoin products.

This article originally appeared on The Tokenist

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