In a landmark decision for the largest cryptocurrency in the world and the larger cryptocurrency market, the US securities commission on Wednesday approved the first US-listed exchange traded funds (ETFs) to track bitcoin.
Although some regulators and investor advocates warned that the products contained risks, the Securities and Exchange Commission said it granted 11 applications, including those from BlackRock, Fidelity, Invesco, Ark Investments/21Shares, and VanEck.
According to issuers, the majority of products are anticipated to go live on Thursday, sparking a competitive race for market share.
The ETFs, which have been in development for ten years, are revolutionary for bitcoin because they provide investors access to the biggest cryptocurrency in the world without requiring them to own it directly. They give the scandal-plagued cryptocurrency industry a significant boost.
This week, analysts at Standard Chartered predicted that this year alone, ETFs may pull in $50 to $100 billion. Other analysts have provided a closer estimate of $55 billion for inflows over the next five years.
Bitcoin recently increased by 3% to $47,300. This week, the cryptocurrency reached its highest level since March 2022, after surging over 70% in recent months in expectation of an ETF.
Fees and liquidity will be the key factors determining success in the fight for inflows, according to analysts. This week, several issuers, including BlackRock and Ark/21Shares, cut their projected fees in new filings. These fees can vary from 0.2% to 1.5%, and many companies provide fee waivers for a specific period of time. Liquidity can be particularly crucial for investors looking to enter and exit in a short term.
Businesses anticipate an explosion of different forms of marketing and web advertising. Bitwise and VanEck, among other issuers, have released advertisements promoting bitcoin as a form of investment.
The approvals occurred one day after an unidentified person claimed that the SEC had allowed the products to trade in a fake message on the agency's social media. The message was quickly removed by the agency.
It said on Wednesday that it is working with the SEC's internal monitor and law enforcement to look into the matter.
The crypto industry's celebrations were unabated despite that incident and a confused declaration made by the SEC on Wednesday afternoon, in which it seemed to broadcast the official regulatory approval but then remove it.
The approval is a milestone for the ETF sector, and the new offerings should provide investors who wish to participate in cryptocurrency with more options. Some regulatory experts believe that other cutting-edge cryptocurrency products may be made possible by the bitcoin ETFs. For instance, a number of issuers have applied to track the second-largest cryptocurrency through ETFs.
Speculative and volatile
The purpose of cryptocurrencies was to provide an alternative to traditional currencies that are issued and supported by governments, like the euro and the US dollar. However, because of their extreme volatility, cryptocurrencies are mostly used as speculative investments.
The SEC made a U-turn in accepting bitcoin ETFs after initially rejecting them because of concerns about their ease of manipulation. Gary Gensler, the chair of the SEC, has a strong disbelief in cryptocurrency.
However, in an extremely unusual move, Democratic commissioner Gensler voted in favor of the products along with the two Republican commissioners of the SEC, with two Democratic commissioners voting against. One, Caroline Crenshaw, mentioned concerns about investor protection.
After a federal appeals court determined last year that the SEC erred in rejecting Grayscale Investments' application to convert its flagship Grayscale Bitcoin Trust into an ETF, there was a renewed sense of hope that the agency would eventually approve bitcoin exchange-traded funds.
In a statement released on Wednesday, Gensler stated that the agency does not support bitcoin, characterizing it as a speculative and volatile asset that is also utilized for funding crime, but that approving the products is the most feasible course of action in light of the court's ruling.
Additionally, Gensler restated his long-standing belief that bitcoin is a commodity rather than a security and that the approval on Wednesday was in no way a sign that the SEC would be caving in to pressure from companies operating in the cryptocurrency space that it claims are breaking the law.
A number of exchanges had suggested collaborating with Coinbase, the biggest cryptocurrency exchange in the United States, to monitor trading in the bitcoin market in order to comply with the SEC's investor protection requirements. However, the issuers abandoned that collaboration this week in favor of an already-existing agreement with the Chicago Mercantile Exchange, which served as the foundation for Grayscale's legal triumph.
Coinbase is presently being sued by the SEC for allegedly breaking securities laws in the United States, a claim that Coinbase refutes.
CEO of the research tank Better Markets, which advocates for investors, Dennis Kelleher, cautioned that bitcoin remained vulnerable to cryptocurrency scammers and called the approval of the ETFs a "historic mistake."