SEC Delays BITCOIN Spot ETFs Despite Congressional Support: Impact of a Looming Government Shutdown

Congressional Support for Bitcoin Spot ETFs

On September 26th, four US Congressmen, namely Mike Flood, Wiley Nickel, Tom Emmer, and Ritchie Torres, sent a letter to US Securities and Exchange Commission (SEC) Chairman Gary Gensler, demonstrating bipartisan support for a Bitcoin Spot ETF. The letter, which can be found here, urged the SEC not to discriminate against these ETFs. In their letter, the Congressmen referenced a significant legal victory for Grayscale Investments against the SEC. The SEC was found to have violated the Administrative Procedures Act when it denied Grayscale’s application to convert the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin Exchange Traded Product (ETP). The letter argued that Grayscale’s proposed Spot Bitcoin product aligns with relevant regulatory standards.

SEC’s Unprecedented Decision to Delay Bitcoin Spot ETFs

Despite congressional support, legal backing, and growing concern about the US’s position in the web3 industry, the SEC has chosen to delay Bitcoin exchange-traded funds (ETFs) in an unusual move. Typically, the SEC makes decisions on filings either to approve or delay them on the deadline day. However, this time, they decided to act ahead of schedule.

First Wave of Delays This Week

One of the ETFs affected is the Ark 21Shares Bitcoin ETF, whose decision wasn’t due until October 11th. Now, the SEC has extended the deadline for this particular Bitcoin Spot ETF until January 10, 2024. Additionally, the SEC also delayed the decision on Global X’s spot-Bitcoin ETF filing.

Blackrock’s Surprise Delay and Industry Impact

On September 28th, 2023, the SEC created ripples in the industry by delaying further Bitcoin Spot ETFs, including one filed by Blackrock. This move caught many by surprise, as Blackrock’s application was seen as a strong contender for approval in October. Blackrock’s solid track record with the SEC, its influential lobbying power, and industry clout had fueled expectations. The original decision date for Blackrock’s ETF was set for October 17th. The SEC also opted to delay decisions on filings by Invesco and, Valkyrie, Bitwise on the same day. Link to Blackrock’s ETF filing delay.

Looming Government Shutdown’s Influence

It appears that the SEC’s decision to rush the evaluation of these ETF filings is closely tied to the looming specter of a government shutdown. The United States is on the brink of experiencing its 22nd government shutdown in the past half-century, with the midnight deadline for Congress to pass a new budget to fund government agencies just hours away.

Without a budget agreement, certain critical government departments will cease operations as of Sunday. Many federal agencies rely on annual funding approved by Congress, with agencies submitting their funding requests for congressional approval and presidential endorsement for the upcoming fiscal year.

Should no agreement be reached by the start of the fiscal year on October 1st, a government shutdown will occur, leading to the suspension of all non-essential discretionary functions. Typically, as the deadline approaches, lawmakers from both parties come together to agree on temporary funding based on the previous year’s allocations. This stop-gap measure, known as a continuing resolution (CR), ensures that agencies remain operational until Congress can reach a consensus on long-term funding.

The current government shutdown threat adds an extra layer of uncertainty to the SEC’s handling of Bitcoin Spot ETFs, making it even more crucial to monitor the situation’s developments and their potential impact on various financial markets.

Impact of a Government Shutdown

A looming government shutdown in the United States can cast a shadow of uncertainty over various financial markets, influencing the behavior of risk assets, the US dollar, and the crypto industry.

Risk Assets

Government shutdowns historically trigger heightened market volatility and risk aversion. Equities, in particular, tend to suffer as investors seek refuge from uncertainty. Stock prices may plummet as riskier assets lose favor. Simultaneously, volatility indices, such as the VIX, often surge, causing unpredictable price swings. Credit markets can also feel the impact, with borrowing costs rising due to increased risk premiums.

US Dollar

The US dollar’s response to a government shutdown is mixed. Initially, the dollar may strengthen as it benefits from investors seeking safety. However, as a shutdown persists, concerns about the country’s economic stability and ability to meet debt obligations may weaken the dollar over time. Prolonged political uncertainty can erode confidence in the currency.

Crypto Industry

The crypto industry, known for its decentralized and borderless nature, is not immune to the effects of a government shutdown. Cryptocurrencies like Bitcoin, Cardano, and Ethereum may initially benefit from a flight to digital assets during market turmoil. Yet, crypto markets remain highly volatile, susceptible to rapid price fluctuations. Regulatory developments in the crypto space can be delayed during a government shutdown, affecting decisions like those regarding Bitcoin ETFs. The broader atmosphere of uncertainty generated by a government shutdown can influence global sentiment and impact crypto market sentiment, making traders more cautious and risk-averse.

Conclusion

In the wake of the rushed delays driven by a looming government shutdown, the fate of Bitcoin Spot ETFs remains uncertain. While the SEC may revisit these proposals after the shutdown, the ultimate approval or rejection will continue to be determined by a complex interplay of regulatory considerations, market dynamics, legal precedents, and public sentiment, making it a topic of keen interest for investors and the crypto community alike.