Daily Management Review

US SEC Authorises Bitcoin ETFs, A Historic Moment For The Crypto Sector


US SEC Authorises Bitcoin ETFs, A Historic Moment For The Crypto Sector
The US Securities and Exchange Commission allowed the first U.S.-listed exchange traded funds (ETFs) to track bitcoin on Wednesday, marking a watershed moment for the world's largest cryptocurrency and the crypto sector as a whole.
The Securities and Exchange Commission said it granted 11 applications, including those from BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck, despite concerns from several regulators and investor advocates about the products' hazards.
According to issuers, the majority of the products will begin trading on Thursday, kicking off a vigorous race for market share.
The ETFs, which have been in development for a decade, are a game changer for bitcoin, providing investors with exposure to the world's largest cryptocurrency without having to actually possess it. They provide a significant boost to a crypto market riddled with controversies.
"It's a huge positive for the institutionalization of bitcoin as an asset class," said Andrew Bond, managing director and senior fintech analyst at Rosenblatt Securities.
This week, Standard Chartered analysts predicted that ETFs may generate $50 billion to $100 billion this year alone. Other economists estimate that inflows will be closer to $55 billion over five years.
Bitcoin's market capitalization was more than $913 billion on Wednesday, according to CoinGecko. According to the Investment Company Institute, the total net assets of U.S. ETFs were $6.5 trillion in December 2022.
Bitcoin was last up 3% to $47,300. The cryptocurrency has risen by more than 70% in recent months in anticipation of an ETF, reaching its highest level since March 2022 this week.
Analysts believe that success in the battle for inflows will be mostly determined by fees and liquidity. Some issuers, including BlackRock and Ark/21Shares, reduced their proposed fees in new filings this week. Fees range from 0.2% to 1.5%, with many firms offering charge waivers for a limited time. For short-term speculators looking to buy and sell products, liquidity may be more crucial.
Companies anticipate a frenzy of online advertising and promotion. Some issuers, like as Bitwise and VanEck, have already run advertising promoting bitcoin as an investment.
"It is pretty unprecedented, so we'll see how it works. I've never been in a situation where 10 of the same ETF was launched on the same day,” said Steven McClurg, chief investment officer at Valkyrie, whose ETF was among those approved on Wednesday.
The approvals came a day after an unauthorised person posted a bogus post on the SEC's account on social media site X, claiming that the agency had approved the items for trading. The agency swiftly disavowed and removed the post.
On Wednesday, it announced that it is working with law enforcement and the SEC's internal monitor to investigate the issue.
That episode, combined with a confusing announcement on Wednesday afternoon in which the SEC purported to issue the formal regulatory permission before removing it from its website, did not dampen the crypto industry's euphoria.
"We believed that bitcoin could change the world, and we were and remain excited at the prospect of democratizing access to this asset," said Grayscale CEO Michael Sonnenshein.
Douglas Yones, head of exchange traded products at the New York Stock Exchange, where some products will be listed, described the clearance as a "milestone" in the ETF industry.
Cynthia Lo Bessette, head of digital asset management at Fidelity, stated that the new products will provide "increased choice for investors who want to engage with" cryptocurrency.
Some regulatory experts feel that bitcoin ETFs could pave the door for additional innovative cryptocurrency products. Several issuers, for example, have filed for ETFs that follow either, the second-largest cryptocurrency.
"Once the dam has been breached, it’s going to be really hard for the SEC to continue its ‘just say no to crypto’ approach,” said Jim Angel, associate professor at Georgetown's McDonough School of Business.
Cryptocurrencies were founded as an alternative to fiat currencies, which are currencies established and backed by a government, such as the US dollar and the euro. However, because to their volatility, cryptocurrencies are primarily utilised as speculative investments.
The favourable light is a U-turn for the SEC, which had rejected bitcoin ETFs due to concerns that they may be easily manipulated. Gary Gensler, the SEC Chair, is a staunch crypto sceptic.
In a rare move, Gensler, a Democrat, voted with the SEC's two Republican commissioners to allow the products, while the agency's two Democratic commissioners voted against them. Caroline Crenshaw expressed investor protection concerns.
Last year, a federal appeals court found that the SEC was wrong to deny Grayscale Investments' proposal to convert its existing Grayscale Bitcoin Trust into an ETF, raising hopes that the agency would finally allow bitcoin ETFs.
In a statement issued on Wednesday, Gensler stated that in light of the court verdict, authorising the products was "the most sustainable path forward," but stressed that the agency did not condone bitcoin, describing it as a "speculative, volatile asset" that is also used to fund crime.
Gensler also reiterated his long-held opinion that bitcoin is a commodity, not a security, and that Wednesday's approval was "no way" a hint that the SEC will ease up on its crackdown on crypto players it claims are breaking the law.
To fulfil the SEC's investor protection bar, multiple exchanges proposed collaborating with Coinbase, the largest US crypto exchange, to monitor trade in the underlying bitcoin market. However, the issuers abandoned that cooperation this week in favour of an existing agreement with the Chicago Mercantile Exchange, which was at the heart of Grayscale's legal success.
The SEC is presently suing Coinbase for allegedly violating United States securities laws, which the company denies.
Dennis Kelleher, CEO of the investor advocate think tank Better Markets, said that bitcoin remained vulnerable to crypto fraudsters and that licencing the ETFs was a "historic mistake."
"The SEC’s action today has changed nothing about this worthless financial product: bitcoin and crypto still have no legitimate use," he said.