SEC Approval for Bitcoin Spot ETF: Beginning of the Bull-run?
The US Security and Exchange Commission, a regulatory body overseeing capital markets and enforcing law against market manipulation, has approved Spot Bitcoin ETFs (Exchange Trade Funds). ETF providers sell shares for a fund that tracks a specific index, sector, commodity, asset, or a diverse collection of securities. The SPDR S&P 500 for instance, as the oldest surviving and most popular ETF, tracks the stock performance of the 500 biggest companies listed on US Stock exchanges. The aforementioned new regulation allows investment banks to pool funds to invest into the crypto-currency, and then divide the fund into shares, that are traded on stock exchanges. These Spot Bitcoin ETFs will track the price of Bitcoin and will resemble its fluctuation in price.
The grant followed almost a decade of resistance from the SEC, which considered the risk of cryptocurrency investments – and crypto’s repeated association with fraud and manipulation – to be harmful to investors. The decision represents the second step in a process that started in 2021, when the SEC approved Bitcoin Futures ETFs. These track changes in the price of Bitcoin, even though the provider of the ETF doesn’t hold any of the currency. Instead, these Bitcoin Futures ETFs, which are offered by investment firms such as ProShares, tried to mimic the price fluctuation of Bitcoin using Bitcoin Futures contracts as underlying assets.
To date, the SEC has granted permission to 11 sponsors of Spot Bitcoin ETFs. One of the sponsors is the American investment company BlackRock, which launched the iShares Bitcoin Thrust ETF (IBIT) on the 11th of January. On their website, BlackRock promises facilitated accessibility to Bitcoin for investors through reduced trading commissions, as well as reduced tax report complexities. It essentially allows investors to trade cryptocurrencies without the operational burdens of holding them.
The step towards crypto ETFs will alleviate costs and inconveniences attributed to crypto-currencies, making them a more accessible option for investors. Currently, companies authorized to sell Bitcoin ETFs are competing for buyers by undercutting each other in terms of trading fees. BlackRock’s IBIT is trading at a sponsor fee of only 0.25%, while other Bitcoin Spot ETF providers have called to renounce trading charges for now. Trading these ETFs therefore will costs less than trading Bitcoin using online crypto wallets, which are currently the most accessible way for traders to invest in crypto. At the same time, ETFs will be subjected to stricter regulations of traditional intermediaries, resulting in a higher degree of stability and legitimization in the sector and attracting new retail as well as institutionalized investors.
The approval has led many to predict increase in demand for digital assets. Some analysts forecast that Bitcoin has the potential to increase almost twofold in value by 2024. Still, some representatives from the SEC have expressed their concerns over the effects Bitcoin can have on the capital markets. "While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse Bitcoin “, Gary Gensler, Chairperson of the SEC, said. "Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto."
Ferdinando Angeloni