US watchdog the Securities and Exchange Commission has bowed under pressure and finally given the green light on spot-bitcoin exchange-traded funds, putting to rest a saga 10 years in the making.
An omnibus of ETFs from Blackrock (NYSE:BLK), Fidelity, Ark Investments, Invesco, 21Shares, VanEck and others got the green light from the SEC, giving traditional investors direct access to bitcoin on regulated US securities exchanges.
Few would have anticipated such a sharp U-turn from the regulator, given SEC chair Gary Gensler’s consistent denial of any and all ETF applications over the past 10 years.
But bitcoin in 2024 is vastly different to bitcoin in 2014, and pressure from some of the world’s largest financial institutions, which have clients eagerly demanding bitcoin-based ETF (or ETP, standing for exchange-traded products), strongarmed Gensler into reevaluating their merits.
Still, Gensler struck a cautious tone when approving these products and was quick to distance himself from the underlying “non-security commodity”, as he described bitcoin.
“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin,” he stated. “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”
He reiterated his contention that, unlike ETPs holding tangible commodities like precious metals, bitcoin remains “a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing”.
Nor should the approvals be seen as an endorsement of cryptocurrency trading platforms or other intermediaries, which, Gensler stressed, “are non-compliant with the federal securities laws and often have conflicts of interest”.
He warned that the commission will investigate instances of fraud and manipulation in the securities.
Rift exposed within SEC
While Gensler remained trepidatious, SEC Commissioner Hester M. Peirce shot a few criticisms her boss’s way.
“Today marks the end of an unnecessary, but consequential, saga,” stated Peirce, who called the string of denials “perplexing”.
“More than ten years after the filing of the first spot bitcoin exchange-traded product application, the Commission finally has approved multiple applications by exchanges to allow the listing and trading of spot bitcoin ETPs… You need not be a seasoned securities lawyer to spot the difference in treatment of bitcoin-related ETP applications compared to the many other ETP applications that have been routinely filed and approved over the past decade.
Peirce called ETPs an important innovation that democratises access to asset a wider range of asset classes, as so accused the SEC of squandering “a decade of opportunities to do our job”.
“The Commission, allowing our prejudice against the underlying asset to get in the way, has rejected applications on the basis that the bitcoin market was still immature and that there were outstanding manipulation concerns.
“Today’s approval order notes that the Commission now finds that means for ‘preventing fraud and manipulation’ have been demonstrated because the prices on the CME bitcoin futures market and the spot bitcoin markets have been highly correlated throughout the past two-and-a-half years.
“We have denied multiple applications over that period, depriving investors of the opportunity to gain exposure to bitcoin in a more convenient and investor-friendly way. The only material change since we last denied a similar application was a judicial rebuke.”
The judicial rebuke Peirce referred to being a recent ruling in Grayscale Investments versus the SEC, when D.C. Judge Neomi Rao called the SEC’s rejections “arbitrary and capricious”, given that futures-based bitcoin ETFs were approved as far back as 2022.
Judge Rao’s ruling was seen as a major catalyst for the eventual approval of spot-ETF products this week.
Grayscale hails spot-bitcoin approvals
Grayscale, which spent 10 years attempting to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, cheered on the approvals.
“This approval will make it among the first such products to be brought to market in the US, as well as the world’s second-largest commodity-based ETF and the world’s largest spot Bitcoin ETF,” stated Grayscale.
GBTC shares will soon be listed on NYSE Arca under the GBTC ticker symbol.
Once the shares are listed on NYSE Arca, Grayscale intends to issue additional shares on a registered basis under the Securities Act of 1933, and employ simultaneous creations and redemptions.
“Grayscale believes these changes will enable GBTC to more closely track the value of its underlying Bitcoin holdings, after deduction of expenses,” the company stated.
A ‘watershed moment’
Yoni Assia, chief executive and co-founder of hybrid exchange eToro, called the approvals a “watershed moment”.
“For 15 years, bitcoin has been growing in prominence as an asset class amongst retail investors, while in a reversal of traditional roles, institutional investors have remained largely on the sidelines waiting for traditional finance rails to be put in place.
“Today’s news provides an answer for institutional demand for bitcoin. It’s good news for crypto markets and supportive of our belief that bitcoin is an unstoppable technology. It is digital gold and taking a long term view, I believe that it represents the intersection of finance, economics and technology.”
Despite being a big deal for bitcoin as an asset class, price action was fairly muted post-approval.
The BTC/USD pair closed 1.2% higher on Wednesday before dropping 86 basis points in this morning’s early trades.
At the time of writing, bitcoin was swapping for $46,257.