On January 10, the U.S. Securities and Exchange Commission (SEC) granted approval for the first-ever U.S.-listed exchange-traded funds (ETFs) tracking bitcoin, marking a significant development for the world’s largest cryptocurrency and the broader crypto industry.
The SEC greenlit 11 applications, including those from major entities such as BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck. This move, despite concerns raised by some officials and investor advocates about associated risks, sets the stage for these ETFs to commence trading, initiating a competitive battle for market dominance.
A culmination of a decade-long process, these ETFs is a transformative development for bitcoin, allowing investors to gain exposure to the cryptocurrency without direct ownership. This approval is considered a positive step toward the institutionalization of bitcoin as a recognized asset class, according to Andrew Bond, Managing Director at Rosenblatt Securities.
Analysts from Standard Chartered anticipate substantial inflows of $50 billion to $100 billion this year alone, while others project around $55 billion over the next five years. The current market capitalization of bitcoin exceeds $913 billion, as reported by CoinGecko, while U.S. ETFs’ total net assets stood at $6.5 trillion as of December 2022, according to the Investment Company Institute.
The approval triggered a surge in bitcoin’s value, which rose by 3% to reach $47,300. The cryptocurrency had already experienced a 70% increase in recent months in anticipation of the ETF approval.
Success in attracting investments is anticipated to hinge on factors such as fees and liquidity. Some issuers, including BlackRock and Ark/21Shares, have adjusted their proposed fees, ranging from 0.2% to 1.5%, with some firms waiving fees for an initial period. Marketing efforts, including online advertising, are expected to intensify as companies vie for investor attention.
Despite a few hiccups, such as a fake post on social media falsely claiming approval and a brief confusion regarding the SEC’s publication of regulatory approval, the industry remains celebratory.
Key figures in the industry, including Douglas Yones of the New York Stock Exchange and Cynthia Lo Bessette of Fidelity, consider this approval a milestone for the ETF sector and a means of providing increased choices for investors engaging with cryptocurrencies.
Regulatory experts suggest that the approval of bitcoin ETFs could pave the way for other innovative crypto products. While the SEC, led by crypto skeptic Gary Gensler, had previously rejected bitcoin ETFs over concerns of manipulation, the recent approval represents a shift in stance. Gensler, along with two Republican commissioners, voted in favor, while two Democratic commissioners voted against, citing investor protection concerns.
The approval is seen as a response to a federal appeals court ruling that favored Grayscale Investments’ application for a bitcoin ETF. Gensler clarified that the approval does not endorse bitcoin, emphasizing its speculative and volatile nature, as well as its use in criminal activities. The SEC, he asserted, remains committed to scrutinizing crypto players allegedly violating existing laws.
To meet the SEC’s investor protection standards, exchanges initially proposed partnering with Coinbase, but the issuers opted for an existing arrangement with the Chicago Mercantile Exchange, central to Grayscale’s previous court victory. Despite concerns from critics like Dennis Kelleher of Better Markets, who called the ETF approval a “historic mistake,” the crypto industry welcomes this development as a groundbreaking moment.