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⚡Bitcoin ETF Approval on the Horizon🗓️

Croxroad

01 Nov 2023 — 6 min read

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🧑‍⚖️ Thursday Targeted for Bitcoin ETF Approval

Bitcoin's price has hit a roadblock at $35,000 as the excitement around the potential approval of the first-ever Bitcoin exchange-traded fund (ETF) wanes. However, there's a twist in the tale, as attorney Scott Johnsson from Davis Polk suggests that the market might be in for a surprise in the next few days. In a recent X (formerly Twitter) post, he mentioned that the first closed meeting of the commissioners, happening on November 2, includes discussions on resolving litigation claims and administrative proceedings related to the ETF. This meeting follows Grayscale's appeal deadline and the delivery of the mandate. While it's a date to watch, there's no certainty that we'll receive any concrete news. The crypto world is holding its breath for a potentially significant development.

The mention of BITO refers to the ProShares Bitcoin Strategy ETF, which became the first Bitcoin futures ETF and launched on October 19, 2021. BITO made headlines by rapidly reaching the $1 billion milestone shortly after its debut. Before BITO's approval, there was a leak from a closed SEC meeting suggesting that the regulator was leaning towards approving this futures ETF because it adhered to mutual fund regulations, which SEC Chairman Gary Gensler believed offered "significant investor protections."

Johnsson's tweet hints at the possibility of a similar scenario occurring after the November 2 meeting, raising hopes for the approval of a spot Bitcoin ETF being listed on U.S. markets before 2023 ends. Multiple applications for spot Bitcoin ETFs have recently been amended, with firms like Ark Invest, BlackRock, Bitwise, VanEck, and Valkyrie among those making adjustments to increase their chances of approval. The key focus of these amendments revolves around how the funds will be initially seeded for trading. These changes aim to bring all applicants under a consistent standard, potentially leading to a mass approval of these applications. The timeline for SEC's review and potential further amendments from other applicants remains a topic of interest in the coming weeks.

Johnsson emphasised that the conversation about a potential leak is highly speculative, and he personally considers it unlikely. He expressed his scepticism when asked in a poll whether the SEC would leak information ahead of an approval/disapproval order, similar to what occurred with the ETH futures ETF decision. While the majority (57%) of poll respondents believed a leak would happen, only 24.2% thought it wouldn't. Johnsson aligned with the minority opinion, suggesting that the situation with ETH futures ETFs was unique, where the SEC allegedly had to act to avoid litigation. He wasn't aware of other cases where such orders were leaked ahead of time.

Furthermore, according to analysts like James Seyffart and Eric Balchunas, there's a 90% chance that the Ark 21Shares spot Bitcoin ETF application will be approved by its final deadline of January 10, 2024. Eric Balchunas also highlighted the continued demand for a spot Bitcoin ETF, with significant trading volumes in related products like BITO and GBTC. This indicates that there is a substantial audience seeking exposure to Bitcoin through such ETFs, even if spot ETFs may not set records on their initial launch day.

⬜ Bitcoin's Transformation

Fifteen years after Satoshi Nakamoto introduced the world to Bitcoin in their white paper, it's clear that Bitcoin has evolved beyond the original vision. While the fundamental concept of a decentralised, proof-of-work blockchain remains intact, the initial idea of Bitcoin as purely digital cash has expanded. Today, many view Bitcoin as a digital reserve asset, similar to a form of digital gold. Yet, Nakamoto's original vision revolved around creating a trustless electronic payment system, eliminating the need for central intermediaries. The white paper proposed a framework where cryptographic proof allowed direct transactions between parties, protecting sellers from fraud, and enabling the implementation of escrow mechanisms for buyer protection. Bitcoin's journey has been a fascinating transformation from digital cash to a versatile digital asset.

The evolution of Bitcoin, as well as how it's perceived and used, began to shape itself in the years following the release of the white paper. One of the earliest departures from the original vision was the emergence of mining pools. Initially, Satoshi Nakamoto envisioned individuals using personal computers for Bitcoin mining, aiming for a more inclusive and decentralised ecosystem. However, the reality shifted towards scale and centralization as mining pools and advanced hardware took over. This transformation changed the dynamics of mining, away from "one-CPU-one-vote" to a more concentrated approach. The first mining pool, later named Slush Pool, was founded in 2010 to accommodate the shift from CPU to GPU mining. GPU mining thrived, but it eventually gave way to application-specific integrated circuits (ASICs) designed for Bitcoin mining. These ASICs, while efficient, became expensive and power-hungry, making at-home solo mining unprofitable. Today, Bitcoin mining has transformed into a digital commodity production industry dominated by large corporations, highlighting the remarkable journey from a decentralised vision to a centralised mining landscape.

Over the past decade, the mechanics of the Bitcoin network have undergone significant changes. In 2012, the network introduced Pay to Script Hash (P2SH) through BIP 16, which simplified the handling of multi-signature transactions. Before P2SH, such transactions were complex and involved revealing the entire spending conditions upfront, making them cumbersome and risky. P2SH allowed users to send funds to a standardised Bitcoin address representing a hash of the redeem script, concealing its intricacies. The full script with its conditions was only revealed and executed when spending the coins, streamlining transactions, improving user-friendliness, and enhancing scalability.

Another crucial improvement came in 2017 with Segregated Witness, or SegWit. This change addressed transaction malleability and increased the block size limit from the original 1MB to 4MB, paving the way for subsequent enhancements. One of these was the 2021 proposal known as Taproot, which made transactions more efficient and private, while also enabling users to engage in more complex transaction types.

The landscape of Bitcoin trading has evolved into a complex ecosystem over the years, with various companies offering a multitude of products. Interestingly, the white paper by Satoshi Nakamoto didn't anticipate the possibility of large institutions providing Bitcoin-related financial products. Nakamoto's vision primarily focused on Bitcoin as an alternative and decentralised method of exchange, rather than a means for traditional investors to profit. The concept of Bitcoin ETFs, for instance, involves users relinquishing custody of their funds to financial institutions, a practice Nakamoto's white paper sought to avoid, given the inherent weaknesses of the trust-based model in traditional finance.

The recent speculation about spot Bitcoin ETFs hints at a desire within the Bitcoin community for a connection to the traditional trust model, contrary to Nakamoto's initial vision. While spot Bitcoin ETFs are not currently allowed in the US, Europe saw the launch of its first one in August 2023. The Maxi space has also witnessed innovations like Bitcoin Ordinals, building on the groundwork laid by protocols like Counterparty. These developments opened the door to the inclusion of non-fungible tokens (NFTs) in the Bitcoin ecosystem. Despite NFTs not being around during Bitcoin's inception, advancements like the 2021 Taproot upgrade enabled the inscription of text, images, SVGs, and HTML on the smallest unit of Bitcoin, a satoshi. Bitcoin Ordinals achieved notable success, contributing to record-breaking transaction numbers, underscoring the remarkable growth and complexity of the Bitcoin network since its early days, when transactions numbered in the single-digit thousands.

⬇️🪟 Falling Window

The falling window, also known as a gap-down pattern, is a candlestick pattern seen in financial markets. This pattern involves two bearish candlesticks positioned next to each other with a noticeable gap between them. This gap represents a price difference between the high and low of two consecutive candlesticks, often resulting from increased trading volatility. The falling window is considered a trend continuation pattern, indicating the strong influence of sellers in the market. It suggests that the prevailing downward trend is likely to persist, and traders may anticipate further price declines. This pattern is a valuable tool for technical analysts when assessing market sentiment and making trading decisions.