According to a research report by brokerage firm Bernstein, the U.S. Securities and Exchange Commission (SEC) faces a challenging position regarding spot bitcoin exchange-traded funds (ETFs), but the likelihood of approval is fairly high. The SEC has previously allowed bitcoin ETFs based on futures and recently approved leverage-based futures ETFs, considering that futures pricing comes from regulated exchanges like the CME. Bernstein's analysts, led by Gautam Chhugani, suggest that the SEC's hesitancy towards a spot bitcoin ETF stems from the lack of regulation over spot exchanges, such as Coinbase, resulting in potentially unreliable spot prices susceptible to manipulation. Despite receiving numerous applications, the regulator has yet to approve a spot bitcoin ETF. Blackrock's subsidiary filed for the establishment of a spot bitcoin ETF, prompting other asset managers like Invesco and Wisdom Tree to follow suit or reapply for a bitcoin ETF product. The report also highlights the ongoing appeal by Grayscale to convert its Grayscale Bitcoin Trust (GBTC) into an ETF. The analysts note that the court proceedings cast doubt on the distinction between futures and spot prices, making it challenging for the courts to allow a futures-based ETF while rejecting a spot-based ETF. To address concerns, the industry has proposed a surveillance agreement between spot exchange operators and regulated exchanges like Nasdaq, aiming to enhance oversight. Currently, the absence of a bitcoin spot ETF has led to the popularity of over-the-counter products like the Grayscale Bitcoin Trust (GBTC), which are considered more expensive, illiquid, and inefficient. Grayscale is a subsidiary of Digital Currency Group (DCG), the parent company of CoinDesk. The report suggests that the SEC would prefer a regulated bitcoin ETF led by mainstream Wall Street participants, backed by surveillance from existing regulated exchanges, to fill the institutional gap rather than dealing with the Grayscale OTC product. Overall, Bernstein's analysis indicates a fairly high probability for the approval of a spot bitcoin ETF by the SEC. Such an approval could pave the way for a more regulated and accessible investment vehicle for bitcoin, attracting mainstream Wall Street participants and addressing the current limitations of OTC products like GBTC.