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In a watershed moment that cryptocurrency enthusiasts are betting will attract new retail and institutional investors to the market, the US Securities and Exchange Commission has approved the first spot bitcoin exchange-traded funds.
The top US securities regulator allowed 11 ETFs to list, from established players like sponsors Fidelity and Invesco to digital-focused newcomers including Grayscale and ArcInvest.
BlackRock will ring the opening bell on Nasdaq Thursday morning to promote its iShares Bitcoin fund, the first funds to trade on stock-like exchanges and enjoy special tax treatment in the United States.
The approval comes after months of anticipation and a bitter legal battle. It was a wild 24 hours that saw hackers briefly seize control of the SEC's account on social media platform X, falsely claiming applications had already been approved, and triggering sharp swings in bitcoin's price.
Bitcoin was trading 3 percent higher at around $47,000 on Thursday morning, well below the $69,000 peak it hit in November 2021, but now nearly triple the $16,000 trough it hit in December 2022 after the collapse of ill-fated crypto exchange FTX.
While spot bitcoin ETFs are available in other markets, the US approvals are expected to usher in a new era for the highly popular and liquid crypto token. US institutional and retail investors can now gain direct exposure to the currency through a regulated product, without the risks of buying from unregulated exchanges or the high costs associated with ETFs investing in bitcoin futures.
“This is a huge milestone, the recognition of bitcoin as a large-scale traditional investment,” said Zad Comair, chief executive of Melanion Capital, the first firm to launch a bitcoin-themed ETF in the European Union. “We're opening the door to Wall Street.”
The decision also marks a U-turn by the SEC. The regulator has opposed spot bitcoin ETFs for nearly a decade on the grounds that cryptocurrencies are prone to manipulation and fraud. But last year, Grayscale successfully challenged Watchdog's rejection of an earlier Spot Bitcoin application. A federal appeals court in August ruled that the ruling was “arbitrary and capricious,” prompting the SEC to change its position.
Some crypto enthusiasts are betting that ETFs will significantly increase demand for digital assets, though some ETF watchers are skeptical that massive amounts of money will be pumped into the products. When Broshares launched the first Bitcoin Futures ETF in 2021, it made $1 billion in two days.
But consumer protection and investor groups have warned that making the products available through ETFs could encourage retail investors to move money into a sector known for repeated scandals and massive price swings.
Dennis Kelleher, head of Better Markets, said the approval was a historic mistake that would “not only unleash crypto predators on tens of thousands of investors and pensioners but also undermine financial stability”.
SEC Chairman Gary Gensler tried to sort out the difference in a statement. “Although we approved the listing and trading of some spot bitcoin ETP shares today, we do not endorse or endorse bitcoin,” he said, telling investors to “be aware of the myriad risks associated with bitcoin and crypto-linked products.” .
The misinformation released on the SEC's X account on Tuesday sent bitcoin prices to a 1.5 percent daily gain, before falling as much as 3.4 percent after the regulator set the record straight.
Interest ETFs are all similar to investing directly in Bitcoin. All but Grayscale, which is seeking to turn its $29bn bitcoin trust into an ETF, aim to launch organically.
A price war has already broken out among new ETF providers. BlackRock, Fidelity and other companies updated their filings earlier this week to announce fees of less than 0.5 percent, with many promising to waive fees entirely in the early months of trading.
Grayscale Chief Executive Michael Sonnenschein told the Financial Times that his company had cut its fee from 2 percent to 1.5 percent, but did not plan any further cuts. As a transition from an existing product, GBTC “comes to market in a very different way from other ETF providers that are starting from zero and just launching their products,” he said.
Ark's Cathie Wood – whose firm won't impose its 0.21 per cent fee until six months after launch or until its ETF reaches $1bn – characterized bitcoin as a “public good” and said it was comfortable using the product as a loss leader.
“We want to make sure we provide access and be as accessible as possible,” Wood told the FT. “We're not looking to maximize profits on this. We have other actively managed products that help us.
In a departure from normal ETF practice, the funds will use the money to create and redeem new shares rather than transactions involving their underlying asset, Bitcoin.
The SEC has railed against spot bitcoin ETFs for nearly a decade, but as late as 2021 allowed the first of many ETFs to hold bitcoin futures to launch broshares.
After Grayscale filed its lawsuit, well-known ETF providers began filing their own applications, and the SEC began working with them to fine-tune their proposals. In recent months, issuers have outlined how they will protect investors from market manipulation, identifying some financial institutions that create and redeem shares and switch to a cash-based creation system.
The SEC is “one of the most skeptical regulators in the world, and has come to the finish line and recognized that,” Wood said. “You know there's a lot of war trials going on around here.”
This article has been amended since publication to reflect that 11 ETFs are allowed to list, not 10.
