After a false start on Tuesday, the Securities and Exchange Commission on Wednesday finally approved spot Bitcoin ETFs.
In a filing, the agency announced that applications for 11 issuers, including BlackRock and Grayscale, had been approved—the culmination of a process that began in 2013 when the Winklevoss twins unsuccessfully sought approval for the first Bitcoin ETF.
Crypto pipe dream
ETFs, or exchange-traded funds, have grown in popularity over the last two decades, providing investors access to a basket of assets such as stocks or commodities that can be traded in the form of shares on major exchanges.
A spot Bitcoin ETF, which tracks the current price of the popular cryptocurrency, has long been a pipe dream for the crypto industry, with the hope that it would open new flows of investments from wealth managers and everyday traders who otherwise would not buy digital assets on exchanges like Coinbase.
Under successive administrations, however, the SEC rejected applications for spot Bitcoin ETFs, citing the immaturity of the market and the potential for manipulation. Even after the agency in 2021 approved a Bitcoin futures ETF, which trades derivatives on by Commodity Futures Trading Commission-regulated exchanges, the SEC has continued to deny applications for spot ETFs.
The dynamic changed when Grayscale, a prominent crypto asset manager that runs the largest Bitcoin trust, sued the agency in 2022 for allowing futures-based ETFs but not spot vehicles. In anticipation of a victory, BlackRock filed for a spot Bitcoin ETF in June 2023—a signal to many that approval was inevitable. After Grayscale won its case in August, the timeline was set into motion.
The last few months have been filled with speculation over when an approval might come, as well as how the mechanics around such novel products would work. After a flurry of meetings between prospective issuers and the SEC in December, the agency pushed a cash model for creation and redemption of shares, meaning the onus for buying and selling Bitcoin would be on the issuers.
Race to the finish
Anticipating that the SEC would relent—even under the crypto-skeptical chair, Gary Gensler—the Bitcoin ETF race attracted major players from across the worlds of traditional finance and crypto. While BlackRock remains the highest-profile issuer, thanks to its existing fleet of ETF products, other firms include Fidelity, Franklin Templeton, and Cathie Wood’s ARK.
Crypto-native firms, hoping to entice investors by touting their experience in the digital assets space, include Grayscale, Hashdex, and Valkyrie.
The frenzy has also attracted other players that are not issuing Bitcoin ETFs, but taking on other roles. Coinbase is serving as the Bitcoin custodian for the majority of the issuers, while firms such as JPMorgan, Jane Street, and Virtu are set as authorized participants—the partners who sit in between issuers and investors to handle the creation and redemption of the ETF shares.
Due to the crowded field of entrants, which includes 11 newly approved issuers, firms have spent the past weeks undercutting each other by offering fee reductions and waivers. Others have relied on marketing campaigns with flashy television ads and appeals to the crypto community. One issuer, the asset manager VanEck, pledged 5% of profits to the developers who maintain Bitcoin’s blockchain.
The next development to watch will be how much capital flows into the newly opened market, as well as which issuers capture the most market share. In a Twitter Spaces last week, Matthew Sigel—VanEck’s head of digital asset research—claimed that BlackRock anticipated $2 billion of capital to flow into ETFs from existing Bitcoin holders alone.
Onlookers had Wednesday circled on their calendar because it was the deadline for the SEC to approve the first issuer in line, ARK. Despite assurances of the date, shockwaves rippled through the crypto world on Tuesday when a tweet from the SEC official account appeared to announce the approval of every Bitcoin ETF application. The agency quickly clarified that its account had been hacked, with the culprit still unknown.
Final approval
The SEC’s approval on Wednesday came before the official close of market, causing further fears of a false start—especially after the initial filing disappeared from the website.
This time, the green light proved real, with Gary Gensler posting his own statement to the SEC’s website warning that the agency’s approval of the ETF is not a signal that it will approve the listing of other crypto asset securities.
“As I’ve said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws,” Gensler wrote.
“I am happy to confirm that the Grayscale team has received necessary regulatory approvals to uplist GBTC to NYSE Arca,” Grayscale VP of Communications Jenn Rosenthal wrote in a statement shared with Fortune.
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January 11, 2024 at 03:50AM
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SEC approves Bitcoin ETFs in long-awaited decision after hacking incident on Tuesday - Fortune
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