It’s been over a decade since the first application for a spot bitcoin ETF was filed. After a number of denials over the years, the U.S. Securities and Exchange Commission has approved all 11 applications from spot bitcoin ETF issuers, marking a potential watershed moment for the crypto industry and potentially opening the floodgates by making it easier for institutional investors and consumers alike to invest in the biggest digital asset.
The issuers are BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust, ARK 21Shares Bitcoin ETF, Bitwise Bitcoin ETP Trust, WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Trust, VanEck Bitcoin Trust, Invesco Galaxy Bitcoin ETF, Valkyrie Bitcoin Fund, Hashdex Bitcoin ETF and Franklin Bitcoin ETF. Six of the ETFs will be listed on Chicago Board Options Exchange (CBOE), three will be on the New York Stock Exchange (NYSE) and two will trade on Nasdaq.
The issuers’ fees range from as low as 0.2% to as much as 1.5%. ARK and 21Shares, BlackRock, Bitwise, Fidelity, WisdomTree, Valkyrie and Invesco and Galaxy are doing introductory waivers with zero fees (aside from BlackRock at 0.12%) for a limited time.
After the SEC approval, Bitcoin’s price was slightly higher on the day, around $45,700, and is up 161.7% from the year-ago date, according to CoinMarketCap data.
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Spot-based ETFs basically allow investors to indirectly own an asset. When an investor buys shares in a spot-based ETF, they’re buying shares of the fund that owns that asset (e.g., BlackRock) instead of directly owning it. Futures-based ETFs use contracts that let investors buy or sell an asset at a predetermined price in the future, and also allow investors to own that asset indirectly through the fund they bought it from.
“The ETF is step one to bringing tried-and-true financial products and structures from Wall Street to digital assets that people understand,” Muneeb Ali, CEO of Trust Machines, told TechCrunch.
https://techcrunch.com/2024/01/10/grayscale-ceo-spot-bitcoin-etf/
The only crypto-based ETFs in the U.S. that were approved before today were tied to futures contracts with bitcoin and Ethereum and are traded on the Chicago Mercantile Exchange. In 2021, BITO, the first bitcoin-linked futures ETF in the U.S., launched and immediately saw a lot of demand during its first year. It eventually grew to become one of the largest and most traded crypto ETFs, according to ProShares data.
ETFs can also lend legitimacy to the space and increase adoption from investors who couldn’t access crypto assets beforehand, said John Wu, president of Ava Labs. “With the ETFs, legitimization, protection and distribution becomes mainstream, and that is a watershed moment for the industry.”
On July 1, 2013, Cameron and Tyler Winklevoss filed the first application for a spot bitcoin ETF. The per-unit price of the cryptocurrency was around $100 at the time. The SEC denied their filing four years later, and, over the years, has denied similar applications for spot bitcoin ETFs, citing concerns over potential market manipulation.
But now, that’s all changing since the SEC gave a green light to a number of firms. While these are the first movers in the space, today’s approval could make room for more issuers to enter over time.
According to a recent survey by Bitwise Asset Management, less than half of the financial advisers surveyed expected a spot bitcoin ETF to be approved in 2024. Of those surveyed, 88% of advisers are waiting until after one is approved to buy bitcoin, which means there could be a lot of dry powder on the sidelines.
“The approval of a bitcoin spot ETF marks a pivotal initial step in tapping into the vast amounts of capital that have been on the sidelines in the digital asset space,” Ali said. “Major capital allocators offer a variety of products in traditional markets. If we mirror this approach with bitcoin, the spot ETF represents the first move towards enhanced exposure and integration into mainstream financial products.”
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In June, BlackRock, which has over $8 trillion in assets under management, filed its own spot bitcoin ETF application, raising excitement and hope among investors and institutional market players alike.
In August, digital asset management firm Grayscale won its lawsuit against the SEC after the D.C. Circuit Court of Appeals ruled in favor of the firm over a spot bitcoin ETF. At the time, Grayscale’s chief legal officer, Craig Salm, said on TechCrunch’s Chain Reaction podcast that a bitcoin spot ETF getting approval was “a matter of when, not if.”
On December 29, BlackRock, VanEck, Valkyrie Investments, Bitwise, Invesco, Fidelity, WisdomTree and a joint venture between Ark Investments and 21Shares all submitted new filings to regulators to fine-tune their applications and detail their plans with marketmakers, according to Reuters. At the time, the revisions signified that the issuers met a deadline that would potentially allow them to launch their products by January 10.
“Getting a Blackrock or Fidelity [spot bitcoin] ETF done also signals approval to traditional institutions that it isn’t risky to diversify into bitcoin,” Ali said. “Up until now, those traditional institutions wouldn’t even want to make a million-dollar bet on crypto due to risk. Perceived risk goes down tremendously with these players creating ETFs.”
As some of the biggest financial institutions are leading this movement into the crypto space, it could cause the rest of the industry to act to make sure they have a horse in the digital assets race, Ali added. But over the long-term, when the excitement and dust settles, Ali thinks the work these financial institutions will be doing “week-over-week will cause a trickle-in of funds that will create more consistent upwards price action.”
Wu agreed, saying demand will come immediately and will steadily grow over time. “It will still take a little education on part of the institutions to explain the asset class to their institutional and private wealth client base,” he added.
Many market players, Wu and Ali included, believe it’s a step in the right direction for the broader ecosystem. “Other legitimate technologies will be next in line, but it will take a little bit of time for progress as the [bitcoin spot] ETF needs to show demand and product-market fit first,” Wu said.
The article has been updated to include bitcoin’s price movement after SEC approval.
