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The SEC Approves First Spot Bitcoin ETFs in the US

The US Securities and Exchange Commission (SEC) has made a groundbreaking decision by approving the first spot bitcoin exchange-traded funds (ETFs). This move is expected to attract new retail and institutional investors to the cryptocurrency market. The ETFs, which will be listed on US exchanges and enjoy special tax treatment, have been given the green light to start trading as early as Thursday morning.

The approval follows months of anticipation and a legal battle. The SEC’s account on the social media site X was temporarily hacked, falsely claiming that the applications had already been approved, causing a significant impact on bitcoin’s price.

While spot bitcoin ETFs have been available in other markets, the US approvals mark a new era for the popular and liquid crypto token. US investors can now gain direct exposure to bitcoin through a regulated product, eliminating the risks associated with buying from unregulated exchanges or higher costs associated with bitcoin futures ETFs.

A Major Milestone and a U-turn for the SEC

The approval of spot bitcoin ETFs is a significant milestone, recognizing bitcoin as a large-scale traditional investment. It also represents a U-turn for the SEC, which resisted approving spot bitcoin ETFs for nearly a decade due to concerns of manipulation and fraud in the cryptocurrency market. However, a federal appeals court ruling in August challenged the SEC’s rejection of an earlier spot bitcoin application, pressuring the regulator to change its stance.

Some believe that the ETFs will drive substantial demand for digital assets, while others are skeptical of massive inflows. When the first bitcoin futures ETF was launched in 2021, it attracted $1 billion in just two days.

Consumer protection and investor groups have warned that making the product available through an ETF could encourage retail investors to invest in a sector known for scandals and volatile price fluctuations.

SEC Chair Gary Gensler has emphasized that while certain spot bitcoin ETF shares have been approved, the SEC did not endorse bitcoin itself. He advised investors to remain cautious about the risks associated with bitcoin and crypto-related products.

The Competition Among ETF Providers

The aspiring ETFs all have a common characteristic in that they directly invest in bitcoin. A price war has already emerged among the new ETF providers, with several announcing fees below 0.5% and even waiving charges during the initial months of trading. Grayscale has dropped its fee from 2% to 1.5% but does not plan further cuts. Each ETF provider is approaching the market differently, with Grayscale seeking to convert its existing bitcoin trust into an ETF, and Hashdex planning to convert a bitcoin futures fund into a spot one.

A notable departure from normal ETF practice is that these funds will use cash to create and redeem new shares instead of in-kind transactions involving the underlying assets (bitcoin).

A Battle-Tested Decision

The SEC’s approval of spot bitcoin ETFs is a significant achievement, considering it has been one of the most skeptical regulators worldwide. The decision reflects the battle testing that has taken place in the market, and the SEC’s efforts to fine-tune the proposals from well-known ETF providers.

Read More of this Story at www.ft.com – 2024-01-11 11:26:47

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