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The U.S. Securities and Exchange Commission has approved the first spot bitcoin exchange-traded funds in a watershed moment that cryptocurrency enthusiasts are betting will attract new retail and institutional investors to the market.
The top U.S. securities regulator has approved 11 exchange-traded funds for listing, with sponsors ranging from established players like Fidelity and Invesco to digital-focused newcomers including Grayscale and Ark Invest.
The first funds — which trade on exchanges like stocks and enjoy special tax treatment in the United States — are expected to begin trading Thursday morning, when BlackRock rings the opening bell on the Nasdaq to promote its iShares Bitcoin Trust.
The approval comes after months of anticipation and a bitter legal battle. It also ends a wild 24 hours that saw hackers briefly take control of the SEC’s account on social media site
Bitcoin was trading 3 percent higher at about $47,000 on Thursday morning, well below its peak of $69,000 in November 2021 but nearly three times the low of $16,000 it reached in December 2022 after the cryptocurrency exchange collapsed. Notorious FTX.
While spot Bitcoin ETFs are available in other markets, the US approvals are expected to usher in a new era for more popular and liquid cryptocurrency tokens. US institutional and retail investors will now be able to 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 that invest in Bitcoin futures.
“It’s a huge milestone, it’s an acknowledgment that bitcoin is a broad, traditional investment,” said Jad Qamir, CEO of Melanion Capital, the first company to launch a bitcoin ETF in the EU. “We’re opening the doors to Wall Street.”
The decision also marks a U-turn by the SEC. The regulator has resisted spot bitcoin ETFs for nearly a decade on the grounds that cryptocurrencies were vulnerable to manipulation and fraud. But last year, Grayscale successfully challenged the watchdog’s rejection of its previous instant Bitcoin app. A federal appeals court ruled in August that the decision was “arbitrary and capricious,” putting pressure on the SEC to change its position.
Some cryptocurrency enthusiasts are betting that ETFs will significantly boost demand for digital assets, although some ETF watchers are skeptical that huge sums of money will flow into the products. When ProShares launched its first Bitcoin futures ETF in 2021, it made $1 billion in profits in two days.
But consumer and investor groups have warned that making the product available through ETFs would encourage retail investors to move money into a sector known for frequent scandals and wild price swings.
Dennis Kelleher, president of Better Markets, said the approval is “a historic mistake that will not only unleash crypto predators on tens of millions of investors and retirees, but also potentially undermine financial stability.”
SEC Chairman Gary Gensler tried to split the difference in a statement. “Although we have approved the listing and trading of certain spot Bitcoin shares traded on the exchange today, we have not approved or endorsed Bitcoin,” he said, urging investors “to remain cautious about the myriad risks associated with Bitcoin and the products to which its value is tied.” In cryptocurrencies. .
The false message posted on the Securities and Exchange Commission’s
Aspiring ETFs are similar in that they all invest directly in Bitcoin. All aim to launch organically except Grayscale, which is seeking to turn a $29 billion bitcoin fund into an ETF, and Hashdex, which plans to turn a bitcoin futures fund into a spot fund.
A price war has already broken out between new ETF providers. BlackRock, Fidelity and others updated their filings earlier this week to announce fees of less than 0.5 percent, with several promising to waive fees completely in the first months of trading.
Grayscale CEO Michael Sonnenshein told the Financial Times that his company had reduced its fees from 2 percent to 1.5 percent, but was not planning further cuts. As a conversion from an existing product, GBTC “comes to the market in a very different way than other ETF issuers who are starting from scratch and just launching their product,” he said.
Ark’s Cathie Wood — whose firm won’t charge its 0.21 percent fee until six months after launch or until her ETF hits $1 billion — called bitcoin a “public good” and said she was comfortable using the product as a loss leader.
“We want to make sure we provide access and make it as accessible as possible,” Wood told the Financial Times. “We’re not looking to maximize profits on this. We have other actively managed products that will help us.
In a departure from the usual practice of ETFs, the funds will use cash to create and redeem new shares rather than in-kind transactions involving their underlying assets — Bitcoin, in this case.
The SEC has held out against a bitcoin exchange-traded fund (ETF) for nearly a decade, but in late 2021, it allowed ProShares to launch the first of several ETFs containing bitcoin futures.
After Grayscale filed its lawsuit, popular ETF providers began filing their own applications and the SEC began working with them to fine-tune their proposals. In recent months, issuers have explained how they will protect investors from market manipulation, identified some financial institutions that will create and redeem shares, and have shifted to a cash-based creation method.
The SEC was “one of the most skeptical regulators in the world and it got to the finish line and approved it,” Wood said. “And you know there’s been a lot of battle testing going on about this.”
This article has been modified since publication to reflect that 11 ETFs, not 10 ETFs, have been approved for listing.