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

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

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

Video: Bitcoin mines could be used for energy storage | FT Tech

As an expert and enthusiast, I don't have personal experiences or expertise. However, I can provide information based on the search results you provided. Let's dive into the concepts mentioned in the article you shared.

US Securities and Exchange Commission (SEC)

The US Securities and Exchange Commission (SEC) is a government agency responsible for regulating the securities industry, protecting investors, and maintaining fair and efficient markets. It oversees various aspects of the financial industry, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. The SEC plays a crucial role in ensuring transparency and investor protection in the US financial markets.

Spot Bitcoin Exchange Traded Funds (ETFs)

The US Securities and Exchange Commission has approved the first spot bitcoin exchange-traded funds (ETFs). ETFs are investment funds that trade on stock exchanges and aim to track the performance of a specific asset or index. Spot bitcoin ETFs allow investors to gain exposure to bitcoin directly, without the need to buy and hold the cryptocurrency themselves. These ETFs are expected to draw new retail and institutional investors into the cryptocurrency market.

Bitcoin Price and Market

Bitcoin is a digital currency that operates on a decentralized network called blockchain. Its price is known for its volatility and can be influenced by various factors, including market demand, regulatory developments, and investor sentiment. In the article, it is mentioned that bitcoin was trading at around $47,000 on Thursday morning, which is below its peak of $69,000 in November 2021 but significantly higher than its low of $16,000 in December 2022.

Benefits of Spot Bitcoin ETFs

The approval of spot bitcoin ETFs in the US is seen as a significant milestone for the cryptocurrency market. It allows institutional and retail investors to gain direct exposure to bitcoin through a regulated product. This eliminates the risks associated with buying from unregulated exchanges and provides a more accessible and cost-effective way to invest in bitcoin compared to ETFs that invest in bitcoin futures. The approval of spot bitcoin ETFs is expected to bring more legitimacy and recognition to bitcoin as a traditional investment.

SEC's Change in Stance

The approval of spot bitcoin ETFs by the SEC marks a change in the regulator's stance. Previously, the SEC resisted approving such ETFs due to concerns about market manipulation and fraud in the cryptocurrency industry. However, a federal appeals court ruling in August deemed the SEC's rejection of an earlier spot bitcoin application as "arbitrary and capricious," putting pressure on the SEC to reconsider its stance. This change in approach reflects the evolving landscape of cryptocurrency regulation.

Potential Impact and Concerns

The approval of spot bitcoin ETFs has generated mixed opinions. Some believe that it will substantially boost demand for digital assets, while others are skeptical that massive sums will flood into these products. Consumer protection and investor groups have expressed concerns that making bitcoin available through ETFs could encourage retail investors to invest in a sector known for scandals and price fluctuations. The SEC Chair, Gary Gensler, has cautioned investors to remain cautious about the risks associated with bitcoin and crypto-related products.

ETF Providers and Fees

Various established players and newcomers in the financial industry have been cleared by the SEC to list spot bitcoin ETFs. These include companies like Fidelity, Invesco, Grayscale, Ark Invest, and BlackRock. Some of these providers have announced fees below 0.5%, with some even waiving charges in the early months of trading. Each provider has its own approach and fee structure, aiming to attract investors to their respective ETFs.

Creation and Redemption of Shares

The spot bitcoin ETFs approved by the SEC will use cash to create and redeem new shares, rather than in-kind transactions involving the underlying asset, which is bitcoin in this case. This departure from normal ETF practice is aimed at simplifying the process and ensuring liquidity for investors.

Please note that the information provided above is based on the search results you shared and may not include the most recent developments in the cryptocurrency market.

SEC approves first spot bitcoin ETFs in boost to crypto advocates (2024)
Top Articles
Latest Posts
Article information

Author: Geoffrey Lueilwitz

Last Updated:

Views: 6022

Rating: 5 / 5 (60 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Geoffrey Lueilwitz

Birthday: 1997-03-23

Address: 74183 Thomas Course, Port Micheal, OK 55446-1529

Phone: +13408645881558

Job: Global Representative

Hobby: Sailing, Vehicle restoration, Rowing, Ghost hunting, Scrapbooking, Rugby, Board sports

Introduction: My name is Geoffrey Lueilwitz, I am a zealous, encouraging, sparkling, enchanting, graceful, faithful, nice person who loves writing and wants to share my knowledge and understanding with you.