Historically, the majority of Bitcoin spot ETF applications have been concentrated in 2021. According to data, in 2021, a total of about 13 investment/asset management institutions in the traditional and crypto fields have tried to submit applications for Bitcoin spot ETFs to the SEC. Including Fidelity, SkyBridge, Grayscale, Ark Invest, Invesco and more.

The reason for this boom in applications was mainly due to the impact of Gary Gensler's taking office at that time. Gary Gensler’s inauguration as SEC Chairman at the time, a staunch supporter of the crypto industry and Bitcoin, brought positive sentiment to the entire market, leading to the race around a Bitcoin spot ETF.

Although he soon became a duplicitous "backstabber" in the encryption market. If you are interested in the story of Gary Gensler, please read our biography series: "Is Gary Gensler still worthy of the crypto market's expectations?"

However, due to the immaturity of the Bitcoin market at the time Sexuality and SEC regulatory concerns, all applications for spot Bitcoin ETFs were wiped out. The game surrounding the Bitcoin ETF ultimately ended in a disastrous defeat for the institutions.

Let us look at two examples below, and then analyze the main reasons for the failure of this round of applications.

Fidelity

In May 2021, Cboe BZX submitted an application proposal for the Wise Origin Bitcoin Trust to the SEC. The ETF is sponsored by Fidelity, with Fidelity Service Company Inc serving as manager and Fidelity Digital Assets Services, LLC serving as custodian. The trustee is Delaware Trust Company.

After 240 days of deliberation, the SEC made its decision to deny the application on February 1, 2022. The reason is that the SEC believes that the issuance of a Bitcoin spot ETF requires a surveillance sharing agreement (SSA) to provide regulatory requirements.

SSA, full name Surveillance-Sharing Agreement, is an agreement between cryptocurrency exchanges and market regulators. The agreement allows both parties to share transaction data and information to monitor transactions. If suspicious trading data or information appears, this information will be pushed to regulators, ETF issuers and exchanges at the same time. SSA is often used in situations involving financial products such as ETFs. It can increase the effectiveness of financial market surveillance and help regulators detect market manipulation, fraud and other inappropriate trading practices.

In the application documents at that time, Cboe BZX did not use SSA. As a result, the SEC considered that the ETF may present risks of fraud and market manipulation and rejected the application.

Grayscale

In October 2021, NYSE Arca submitted an application proposal for Grayscale Bitcoin Trust (GBTC) to the SEC, applying to convert GBTC into a standard Bitcoin spot ETF. If successfully approved, GBTC will support redemptions and its price will be anchored to the real-time price of Bitcoin.

According to the filing, the ETF is sponsored by Grayscale, with Grayscale Investments, LLC serving as the sponsor and Coinbase Custody Trust Company, LLC serving as the custodian. The trustee is Delaware Trust Company.

In July 2022, the SEC rejected Grayscale’s application. The reason is consistent with the reasons previously given to Fidelity. The SEC believes that the ETF may have risks of fraud and market manipulation. Although Grayscale later filed a lawsuit, GBTC’s application ultimately failed.

Like Fidelity and Grayscale, other Bitcoin spot ETF applications launched in the same year were also rejected by the SEC. These applications were subject to resolution response times and then received the same denial reason (Missing Surveillance Sharing Agreement SSA).