The Securities and Exchange Commission has until Nov. 14 to give a thumbs up or thumbs down to the VanEck Bitcoin ETF, the first exchange-traded fund in a long line of “spot” bitcoin ETFs that have applications in front of the regulator.

The SEC has delayed a decision on the application twice before, but now that a maximum 240-day review period is over, they must decide.

The ETF and bitcoin community are not optimistic.

“I think there is literally zero chance of passage in the next three years,” Dave Nadig, director of research at ETF Trends, told me.

 That pessimism is born out of two developments: 

1) Key regulators, particularly SEC Chair Gary Gensler, have indicated they are reluctant to expand crypto offerings, particularly a “spot” bitcoin ETF, unless there is legislation clearly defining which regulatory agencies have control over the various crypto spaces, such as crypto exchanges; and

2) Legislation tucked into the recent infrastructure bill will place onerous reporting requirements on crypto.

Crypto investors got their first splash of cold water earlier this year when Gensler spoke at the Aspen Security Forum on Aug. 3, where he noted the need for more investor protection around the crypto space. He said, “Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures.”

Sure enough, Gensler soon approved the first bitcoin futures-based ETF, the ProShares Bitcoin Strategy ETF, which began trading on Oct.19. A second bitcoin futures ETF, the Valkyrie Bitcoin Strategy ETF, began trading on Oct. 22.

But the futures market operates in a “regulated” space. Bitcoin and bitcoin exchanges do not. Gensler has signaled his reluctance to approve securities that are not operating in a “regulated” space.

While the SEC approved bitcoin futures ETFs, claiming they existed in the “regulated” futures market, they seem to have no interest in more exotic products around bitcoin, as Matt Tuttle found out.

Tuttle, who manages Tuttle Capital, had applied for a short bitcoin futures ETF, which would have been allowed to go short bitcoin futures and the Grayscale Bitcoin Trust.

The SEC asked him to withdraw the application.

“The basic theme [from the SEC] was, they don’t want anything out of the ordinary, they didn’t want inverse or levered bitcoin products,” Tuttle told me.

He is also pessimistic on the chances of a “spot” bitcoin ETF approval.

“My guess is it will be a while,” he told me. “There is nothing from Gensler that indicates he is getting more comfortable with a pure-play ETF, so we should assume it will be a punt for now.”

Crypto enthusiasts are also worried about the implications of the new infrastructure bill that recently passed Congress. President Joe Biden is expected to sign the measure.

Tucked into the massive bill are two provisions that affect crypto investors. The first would require that any person who receives a digital asset worth $10,000 or more to gather information about the person who sent the asset and fill out a tax form describing the transaction to the Internal Revenue Service.

Coinbase CEO Brian Armstrong called the provision “a disaster if I understand it. Criminal felony statute that could freeze a lot of healthy crypto behavior (like DeFi).”

A second provision would redefine “broker” to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”  This would make many people working in the crypto space a “broker” and “would subject them to nonsensical and potentially ruinous broker tax reporting requirements,” according to Will Wilkinson, who writes the Model Citizen blog.

Michelle Bond, a former senior counsel at the SEC who is now CEO of the Association for Digital Asset Markets, a group of firms in the digital marketplace, said that these new laws were a clear negative for the development of crypto.

Though the law is ready to be signed by Biden, Bond is optimistic changes could still be made. The provisions don’t go into effect until 2024, which gives the crypto industry time to gather their forces.

“It’s not over yet,” she told me. ”I think this will be a much longer-term thing.” She is hopeful there could be “legislative fixes” next year and that “the industry will be able to provide comment for the rulemaking provisions.”     

Are crypto enthusiasts deluding themselves that a bitcoin ETF will be forthcoming? 

“I think pessimism about a bitcoin ETF should extend into 2022 and beyond,” Mark Palmer, an analyst who covers the fintech and digital assets space for BTIG told me.

“Gensler has made it clear that a bitcoin ETF would have no regulated entity backing it up,” Palmer said. “I don’t think the market has fully grasped that fact.”

“We need more clarity around the crypto space,” he said. “There is a hope Congress will provide clarity, but we think that is highly unlikely. The other is a jurisdictional question, whether it should be regulated by the SEC or the [Commodity Futures Trading Commission].”

While bitcoin is a commodity and thus under the control of the CFTC, a bitcoin ETF is a security that would come under the jurisdiction of the SEC. Palmer believes Gensler is unlikely to make any moves without clear regulatory authority over other parts of the crypto ecosystem, such as exchanges.

“Gensler’s authority is unclear and he will be constrained until he gets greater clarity,” Palmer said.

Bottom line: It could be a long wait for a bitcoin ETF.