Securities and Exchange Commission (SEC), the US securities regulator, has just approved the first of the US-listed ETFs (exchange traded funds) linked to bitcoin. This is a watershed moment for the crypto industry that has been in waiting for this approval for a long time.
The SEC approved almost a dozen applications from the likes of BlackRock, Fidelity, VanEck, Invesco, and Ark Investments. Most of these products have already started trading Thursday.
The industry has been in anticipation of the ETFs for a decade. It is expected to make the biggest impact on bitcoin. Investors can now gain exposure to the largest cryptocurrency without having to directly purchase and store it in their wallets.
With this development, bitcoin has become further institutionalized as an asset class.
What is a Spot Bitcoin ETF?
There are certain differences between investing in spot BTC ETFs and purchasing BTC directly. The most noticeable ones are as follows:
- When you invest in a bitcoin ETF, you do not directly own any bitcoin.
- You will be charged a fee for trading and managing your bitcoin ETF.
This is different from directly buying a bitcoin, where all you have to do is pay a transaction fee. You do not have to pay anything to manage your investment.
A major advantage of investing in a bitcoin ETF is that you can hold and manage it in the same brokerage account where your other investments are held.
Impact of the BTC ETF Approval
According to analysts at Standard Chartered, at least $50 billion can flow into the ETFs in 2024. Bitcoin’s market cap was $913 billion on Wednesday, at the time of the announcement. We had previously reported that a BTC ETF approval can trigger the cryptocurrency’s market cap growth by $1 trillion and a price growth of 70% in 2024. It is expected that the ‘magical’ cryptocurrency is on its way to greatness.
Bitcoin peaked at around $47,000 on Thursday after the announcement.
The list of spot bitcoin ETFs that have been approved by the SEC include:
- BlackRock's iShares Bitcoin Trust
- ARK 21Shares Bitcoin ETF
- Fidelity Wise Origin Bitcoin Trust
- Grayscale Bitcoin Trust
- Valkyrie Bitcoin Fund
- Bitwise Bitcoin ETP Trust
- Franklin Bitcoin ETF
- WisdomTree Bitcoin Fund
- Invesco Galaxy Bitcoin ETF
- Hashdex Bitcoin ETF
- VanEck Bitcoin Trust
With this approval, it can become simpler and less complex to invest in bitcoin for more investors. It will bring legitimacy to an otherwise wildly volatile cryptocurrency industry. Besides, when major financial services brand names such as Fidelity and BlackRock get attached to bitcoin, the cryptocurrency will get pulled into the mainstream as an investment product.
Bitcoin ETF will now become part of the general portfolio for investors. It is apparent the demand for bitcoin will rise and so will its price. This is further likely to drive more interest and investment into the crypto market.
As more investment flows into bitcoin and new products are launched by major financial firms, more supportive regulations are expected to be passed. These laws will most likely revolve around mainstreaming crypto as an investment and mode of payment. Further, potential laws can also be introduced to fight off fraud in this field.
The SEC’s Story
The SEC has received a score of exchange rule filings since 2018 for spot bitcoin exchange-traded products (ETPs). It continued to disapprove all of them until March 2023.
Since then, the agency has received similar filings but under a different set of circumstances. The decision of the US Court of Appeals for the District of Columbia on the previous disapprovals by the Commission proved to be a turning point.
According to the Court, the SEC had not adequately explained the reasons leading to disapproving the listings of Grayscale Bitcoin Trust. The Commission was ordered to reconsider the Grayscale Order. The latter then found it to be a “sustainable path forward” to approve the listing and allow trading of the bitcoin ETF shares.
According to the SEC, the current decision is only about the ETPs holding a single non-security commodity, the bitcoin. The body has though not changed its stand on the listing standards applying to crypto asset securities.
The Commission further claims that the approval doesn't change its stance on other crypto assets that come under the ambit of the federal securities laws. The decision also doesn't in any way apply to specific crypto assets that have been specifically earmarked as non-compliant with the federal securities laws.
New Investor Protections Under the Bitcoin ETF
Before the spot Bitcoin ETF approval, investors could purchase or sell bitcoin at a brokerage firm or national securities exchange. They could also gain exposure to BTC through mutual funds and non-compliant crypto asset trading platforms and P2P payment apps.
With the new SEC approval, investors can benefit from the following protections:
Firstly, bitcoin ETF sponsors are required to provide a detailed and genuine product disclosure. The disclosure should be made in periodic filings as well as public registration statements.
Secondly, these products must only be listed and traded on approved national securities exchanges. Registered exchanges have rules in place meant to prevent any form of fraudulent activity. The SEC will closely monitor the implementation of those rules.
If any incidences of fraud or manipulations take place within the securities markets, the SEC will conduct a thorough investigation. This also includes schemes that utilize social media platforms. Besides, regulated exchanges have their own rules for addressing specific conflicts while protecting the interests of both the general public and their investors.
Thirdly, the SEC is simultaneously reviewing the registration statements of 10 spot bitcoin ETFs but separately. This is meant to create a fair environment for issuers while promoting healthy competition. The Commission believes its experience in overlooking spot non-security commodity ETFs, especially precious metals, should help it in evaluating spot bitcoin ETF trading.
The Commission has gone on to claim that even when they have approved the current listing and trading of specific spot bitcoin ETF shares, this decision doesn't mean that bitcoin has received any endorsement from it. It has cautioned investors about the wide range of risks linked to bitcoin and any products that have their value connected to crypto.
