In a historic move, the US Securities and Exchange Commission (SEC) has given permission for the first Spot Bitcoin ETFs, marking a significant milestone for the cryptocurrency market and a huge stepping-stone towards mainstream adoption. The approval of 11 ETFs, backed by industry giants like Fidelity and Invesco, as well as newcomers such as Grayscale and Ark Invest, is anticipated to attract a wave of retail and institutional investors into the crypto space.
The SEC’s approval ushers in a diverse array of sponsors, from traditional financial powerhouses to digitally focused newcomers. Among the approved ETFs is BlackRock’s iShares Bitcoin Trust, set to commence trading as early as Thursday morning, symbolising a pivotal moment for cryptocurrency enthusiasts.
The green light follows months of intense anticipation and a legal battle. Recent events included a temporary takeover of the SEC’s social media account by hackers, spreading false claims about prior approvals and causing sharp fluctuations in Bitcoin’s value.
Despite trading 3% higher at around $47,000, well below its November 2021 peak, Bitcoin has seen a notable surge from its December 2022 trough of $16,000. The collapse of the FTX crypto exchange played a significant role in the market’s turbulence during that period.
While Spot Bitcoin ETFs have been available in other markets, their approval in the US signals a new era for the popular crypto token. Investors can now gain direct exposure to Bitcoin through regulated products, mitigating risks associated with unregulated exchanges or higher costs linked to ETFs investing in Bitcoin futures.
The SEC’s decision marks a notable reversal and new-found recognition of Bitcoin as a traditional investment, as it had resisted Spot Bitcoin ETFs for nearly a decade due to concerns about manipulation and fraud. Grayscale’s successful challenge of the SEC’s rejection last year paved the way for this breakthrough, with a federal appeals court deeming the initial decision “arbitrary and capricious.”
Enthusiasts believe that the first spot Bitcoin ETFs will significantly boost digital asset demand, reminiscent of the success seen when ProShares launched the first Bitcoin futures ETF in 2021, attracting $1 billion in just two days. However, scepticism looms among some ETF observers, as concerns about potential risks and market volatility persist.
Gary Gensler, the SEC Chair, struck a cautious note, emphasizing that while certain Spot Bitcoin ETFs were approved, the SEC neither approved nor endorsed Bitcoin. He urged investors to remain wary of the risks associated with cryptocurrencies and related products.
The approved ETF providers, including BlackRock and Fidelity, have already initiated a price war by announcing fees below 0.5%, with some even waiving charges in the initial months of trading. Grayscale and Ark Invest have adjusted their fees, with Ark Invest characterising Bitcoin as a “public good” and prioritising accessibility over profit maximisation.
In a departure from typical ETF practices, these funds will use cash for creating and redeeming new shares, deviating from the conventional in-kind transactions involving underlying assets like Bitcoin. This innovative approach aims to streamline processes and enhance liquidity.
The SEC’s journey from being one of the most sceptical regulators to approving its first Spot Bitcoin ETFs reflects significant industry evolution. Recent collaboration with well-known ETF providers, coupled with fine-tuned proposals and enhanced investor protection measures, has culminated in this groundbreaking approval.
The approval not only marks a turning point for Bitcoin but also opens doors for increased institutional participation, potentially reshaping the broader financial markets in the coming years.
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