The US Securities and Exchange Commission (SEC) has given the green light for the first spot bitcoin exchange-traded funds (ETFs), marking a pivotal moment in the crypto space and anticipated to attract a wave of new retail and institutional investors. The approval encompasses 11 ETFs, with sponsors ranging from established players like Fidelity and Invesco to digital-focused newcomers such as Grayscale and Ark Invest.
These ETFs, which trade on exchanges like stocks and receive special tax treatment in the US, are slated to commence trading soon, with BlackRock’s iShares Bitcoin Trust expected to lead the way. This regulatory breakthrough follows months of anticipation and legal wrangling, culminating in a frenetic 24 hours that included a brief hacking incident on the SEC’s X social media account, falsely claiming premature approval of the applications and causing bitcoin’s price to fluctuate.
While bitcoin was trading at around $47,000, up 3% on Thursday morning, below its November 2021 peak of $69,000 but significantly higher than its December 2022 trough of $16,000 after the collapse of FTX crypto exchange. Although spot bitcoin ETFs have been available in other markets, their approval in the US is poised to reshape the landscape for the most popular and liquid crypto token.
This development allows US institutional and retail investors to gain direct exposure to bitcoin through a regulated product, mitigating the risks associated with unregulated exchanges or the higher costs linked to ETFs investing in bitcoin futures. The approval represents a significant shift for the SEC, which resisted spot bitcoin ETFs for almost a decade, citing concerns about manipulation and fraud in the cryptocurrency market.
The reversal in the SEC’s stance was prompted by a legal challenge from Grayscale, which successfully contested the rejection of an earlier spot bitcoin application, leading to a federal appeals court ruling in August that the SEC’s decision was “arbitrary and capricious.” Some experts predict that these ETFs will substantially increase demand for digital assets, while others remain skeptical about massive capital inflows.
Consumer protection and investor groups have raised concerns about making the product available via an ETF, warning that it could encourage retail investors to allocate funds to a sector known for scandals and substantial price fluctuations. SEC Chair Gary Gensler attempted to strike a balance in his statement, acknowledging the approval of certain spot bitcoin ETFs but cautioning investors about the risks associated with bitcoin and crypto-tied products.
Despite the historic nature of this decision, it has stirred controversy, with critics like Dennis Kelleher, president of Better Markets, calling it a “historic mistake” that could expose investors to crypto predators and undermine financial stability. The false message posted on the SEC’s X account on Tuesday briefly impacted bitcoin’s price, underscoring the market’s sensitivity to regulatory developments. The approved ETFs share the commonality of investing directly in bitcoin, with Grayscale seeking to convert its existing $29 billion bitcoin trust into an ETF. Similarly, Hashdex plans to convert a bitcoin futures fund into a spot ETF.