The U.S. Securities and Exchange Commission (SEC) has finally approved rule changes to allow the creation of bitcoin exchange-traded funds (ETFs) in the United States. This highly anticipated move will offer regular investors access to the controversial and volatile cryptocurrency. Additionally, the approval will likely result in the conversion of the Grayscale Bitcoin Trust, which holds approximately $29 billion worth of bitcoin, into an ETF. Furthermore, mainstream issuers such as BlackRock’s iShares and Fidelity are expected to launch their own competing funds. These ETFs are set to begin trading on Thursday, and the decision by the SEC may prove to be a pivotal moment in the adoption of cryptocurrency by mainstream finance.
The ETF structure, now available for bitcoin, provides institutions and financial advisors with a familiar and regulated way to gain exposure to the digital currency. Institutions have traditionally been hesitant to invest in bitcoin due to regulatory concerns and the lack of established investment vehicles. However, with the SEC’s approval, the floodgates may open for institutional investors. Ark Invest CEO Cathie Wood expressed optimism, stating that the SEC’s green light would likely spark greater interest from institutional investors: “We think that the SEC approval, should we and others get it, is a green light for institutions. We’ve been talking to quite a few of them, and they’re much more interested now that the SEC effectively is paving the way.”
The approval of bitcoin ETFs by the SEC marks a significant departure from its previous stance on the matter. For years, the regulator has been opposed to the creation of a spot bitcoin fund. Numerous firms have filed applications for ETFs in the past, only to withdraw them due to the SEC’s resistance. However, SEC Chair Gary Gensler’s tenure has witnessed a shift in the regulator’s position. The change may be attributed, in part, to a court decision in August that criticized the SEC for blocking bitcoin ETFs while allowing funds that track bitcoin futures. Gensler emphasized the limited scope of the SEC’s approval, stating that it does not signal the regulator’s willingness to approve listing standards for crypto asset securities or its views on the status of other crypto assets.
This year, optimism surrounding the approval of bitcoin ETFs began to grow when asset management giant BlackRock filed an application in June. This move triggered a wave of applications from rival firms, with Ark Invest and 21Shares forming the longest active filing. However, the deadline for the SEC’s decision on the fund was set for January, leading many industry experts to anticipate that the first bitcoin ETFs would be approved shortly after the start of 2024. More than 10 different firms are currently in the formal process toward launching their own ETFs, resulting in fierce competition for market leadership. This competition is expected to include varying expense ratios and intense marketing campaigns. Some firms have already reduced their proposed fees to gain a competitive edge. Nevertheless, it is important to note that not all applications will necessarily result in a fund entering the market.
The anticipation of bitcoin ETFs has had a notable impact on the price of the cryptocurrency in recent months. Many crypto advocates believe that the arrival of these ETFs will drive new demand from investors who were previously hesitant due to concerns about custody and the safety of crypto-specific exchanges. The regulatory approval of ETFs serves as a seal of legitimacy, offering reassurance to potential investors. Moreover, the approval comes at the end of a year marked by major law enforcement actions against crypto firms and industry leaders, including the conviction of FTX founder Sam Bankman-Fried and the multiple actions against Binance and its founder Changpeng Zhao.
The SEC’s approval of bitcoin ETFs represents a significant milestone in the adoption of cryptocurrency by mainstream finance. The introduction of these ETFs will give regular investors a regulated avenue to gain exposure to bitcoin, while also enticing institutional investors who have been cautious about entering the crypto market. The decision marks a departure from the SEC’s previous stance and has already had a positive impact on the price of bitcoin. As the market eagerly awaits the launch of various bitcoin ETFs, the entrance of institutional capital is expected to drive further growth and acceptance of digital assets.
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