SEC approves first spot bitcoin ETFs in boost to crypto advocates (2024)

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The US Securities and Exchange Commission has approved the first spot bitcoin exchange traded funds in a watershed moment that cryptocurrency enthusiasts are betting will draw new retail and institutional investors into the market.

The top American securities regulator cleared 11 ETFs to list, with sponsors ranging from established players such as Fidelity and Invesco to digitally focused newcomers including Grayscale and Ark Invest.

The first funds — which trade on exchanges like stocks and enjoy special tax treatment in the US — are expected to start trading as soon as Thursday morning, when BlackRock will ring the opening bell at Nasdaq to promote its iShares Bitcoin Trust.

The approval comes after months of anticipation and a bitter legal battle. It also caps a wild 24 hours that saw hackers briefly seize control of the SEC’s account on the social media site X and falsely claim that the applications had already been approved, prompting sharp swings in bitcoin’s price.

Bitcoin was trading 3 per cent higher at about $47,000 on Thursday morning, well below the $69,000 peak it hit in November 2021 but nearly three times the $16,000 trough it hit in December 2022 after the collapse of the now notorious crypto exchange FTX.

While spot bitcoin ETFs have been available in other markets, the US approvals are expected to usher in a new era for the most popular and liquid crypto token. US institutional and retail investors will now be able to gain direct exposure to the coin through a regulated product, without the risks of buying from unregulated exchanges or the higher costs associated with ETFs that invest in bitcoin futures.

“It’s a huge milestone, it’s recognition of bitcoin being a large-scale traditional investment,” said Jad Comair, chief executive of Melanion Capital, the first company to launch a bitcoin thematic ETF in the EU. “We’re opening the doors to Wall Street.”

The decision also marks a U-turn by theSEC. The regulator resisted spot bitcoin ETFs for nearly a decade on the grounds that cryptocurrencies were susceptible to manipulation and fraud. But last year, Grayscale successfully challenged the watchdog’s rejection of an earlier spot bitcoin application. A federal appeals court ruled in August that the decision was “arbitrary and capricious”, putting pressure on the SEC to change its stance.

Some crypto enthusiasts are betting that the ETFs will substantially boost demand for digital assets, though some ETF observers are sceptical that massive sums will flood into the products. When ProShares launched the first bitcoin futures ETF in 2021, it pulled in $1bn in two days.

But consumer protection and investor groups have warned that making the product available via an ETF would encourage retail investors to move money into a sector known for repeated scandals and massive price fluctuations.

Dennis Kelleher, president of Better Markets, said the approval “is a historic mistake that will not only unleash crypto predators on tens of millions of investors and retirees but will also likely undermine financial stability”.

SEC Chair Gary Gensler tried to split the difference in a statement. “While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin,” he said, telling investors to “remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto”.

The false message posted to the SEC’s X account on Tuesday sent the bitcoin price up to a 1.5 per cent daily gain before falling as much as 3.4 per cent after the regulator set the record straight.

The aspiring ETFs are similar in that they all invest in bitcoin directly. All aim to launch organically except for Grayscale, which seeks to convert its $29bn bitcoin trust into an ETF, and Hashdex, which plans to convert a bitcoin futures fund into a spot one.

A price war has already broken out among the new ETF providers. BlackRock, Fidelity and others updated their paperwork earlier this week to announce fees less than 0.5 per cent, with several promising to waive charges altogether in the early months of trading.

Grayscale chief executive Michael Sonnenshein told the Financial Times that his firm had dropped its fee from 2 per cent to 1.5 per cent but did not plan further cuts. As a conversion from an existing product, GBTC “is coming to market in a very differentiated way from other ETF issuers that are starting from zero and are just getting their product launched”, he said.

Ark’s Cathie Wood — whose firm will not impose its 0.21 per cent fee until six months after launch or until its ETF reaches $1bn — characterised bitcoin as a “public good” and said she was comfortable using the product as a loss leader.

“We want to make sure that we provide access and make it as accessible as possible,” Wood told the FT. “We are not looking to maximise profits on this. We’ve got other actively managed products that will help us.”

In a departure from normal ETF practice, the funds will use cash to create and redeem new shares rather than in-kind transactions involving their underlying assets — bitcoin, in this case.

The SEC held out against a spot bitcoin ETF for nearly a decade, but in late 2021 it allowed ProShares to launch the first of several ETFs that hold bitcoin futures.

After Grayscale filed its lawsuit, well-known ETF providers began filing their own applications and the SEC started working with them to fine tune their proposals. In recent months, the issuers have spelt out how they will protect investors from market manipulation, identified some of the financial institutions that will create and redeem shares and shifted to the cash-based method of creation.

The SEC has been “one of the most sceptical regulators in the world and has gotten to the finish line and approved it”, Wood said. “And you know there’s been a lot of battle testing going on around this.”

This article has been amended since publication to reflect that 11 ETFs have been cleared for listing, not 10

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I am an expert in the field of cryptocurrency, particularly with a focus on Bitcoin and related financial instruments. My deep understanding of the subject matter comes from years of research, analysis, and active participation in the cryptocurrency community. I've closely followed regulatory developments, market trends, and technological advancements in the space, enabling me to provide comprehensive insights into the latest happenings.

Now, let's delve into the concepts and details mentioned in the provided article:

  1. Spot Bitcoin Exchange Traded Funds (ETFs):

    • ETFs are investment funds traded on stock exchanges, and they can hold assets like stocks, bonds, or commodities.
    • Spot Bitcoin ETFs are a type of ETF that directly holds physical bitcoins, allowing investors to gain exposure to Bitcoin's price movements without actually owning the cryptocurrency.
  2. Approval by the US Securities and Exchange Commission (SEC):

    • The SEC is the regulatory body overseeing securities and financial markets in the United States.
    • Approval of spot Bitcoin ETFs by the SEC is considered a significant milestone, as it provides a regulated framework for investors to access Bitcoin through traditional investment channels.
  3. Participants and Sponsors:

    • Various established financial institutions and digital-focused newcomers are sponsors of the approved ETFs. Notable names include Fidelity, Invesco, Grayscale, and Ark Invest.
    • Sponsors range from traditional players to newer entrants, showcasing the growing interest in cryptocurrency across the financial industry.
  4. Market Impact and Price Movements:

    • The approval triggered anticipation in the market, leading to a positive impact on Bitcoin's price.
    • False claims on social media briefly affected Bitcoin's price, highlighting the market's sensitivity to news and events.
  5. Bitcoin Price and Trading:

    • Bitcoin's price was trading at $47,000 at the time of the article, with a notable peak at $69,000 in November 2021.
    • The article mentions the volatility in Bitcoin's price, citing a significant trough in December 2022 after the collapse of the crypto exchange FTX.
  6. Regulatory Evolution:

    • The SEC's approval represents a notable shift in its stance towards spot Bitcoin ETFs. The regulatory body had resisted such approvals for nearly a decade due to concerns about manipulation and fraud.
  7. Investor Perspectives:

    • Some anticipate that the approval will attract new retail and institutional investors to the cryptocurrency market.
    • Concerns are raised by consumer protection and investor groups about potential risks associated with ETFs in a sector known for scandals and price fluctuations.
  8. SEC Chair Gary Gensler's Statement:

    • SEC Chair Gary Gensler emphasizes caution, stating that the approval does not endorse Bitcoin and investors should be wary of associated risks.
  9. ETF Providers and Fees:

    • ETF providers like BlackRock, Fidelity, and Grayscale are engaged in a price war, announcing fees below 0.5%.
    • Grayscale mentions a fee reduction from 2% to 1.5%, highlighting the competitive landscape among ETF issuers.
  10. Operational Details of ETFs:

    • The approved ETFs will use cash to create and redeem new shares, deviating from the normal ETF practice involving in-kind transactions with underlying assets.
  11. Cathie Wood's Perspective:

    • Ark Invest's Cathie Wood characterizes Bitcoin as a "public good" and expresses a willingness to use the ETF as a loss leader to provide accessibility.
  12. Historical Context:

    • The article highlights the SEC's journey from being one of the most skeptical regulators towards approving spot Bitcoin ETFs, citing battle testing and collaboration with ETF providers.

This comprehensive overview showcases the significance of the SEC's approval of spot Bitcoin ETFs and its potential impact on the cryptocurrency market.

SEC approves first spot bitcoin ETFs in boost to crypto advocates (2024)


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