At last, they succeeded.
The first sale and distribution of 11 exchange-traded funds that will monitor the daily or “spot” price of the asset have been approved by the Securities and Exchange Commission, opening up access to the world’s largest digital asset—Bitcoin—for regular investors.
The Commission voted 3-to-2 late on Wednesday afternoon to approve the selling of ETFs in the US, capping a string of embarrassing technical blunders and a social media account hacking incident for the SEC.
Until recently, modest investors who wanted to trade digital assets had to purchase and sell them on unlicensed cryptocurrency exchanges, where they sometimes became victims of fraud and scams. Sam Bankman-Fried, the former cryptocurrency kingpin who was convicted of embezzling $8 billion of customer funds from his now-defunct FTX exchange, is the most prominent example of this.
ETFs that track the daily or spot price of Bitcoin will start trading on the CBOE, Nasdaq, and New York Stock Exchange on Thursday. This is a significant milestone in the development and mainstreaming of the $1.7 trillion cryptocurrency industry. They can buy the ETFs from some of the most illustrious asset managers in the country, like Grayscale, BlackRock, and Fidelity, which trades on the most regulated stock exchanges in the world and specializes in digital assets.
The sale of an ETF tracking the Bitcoin futures market was authorized by the SEC in 2021. What sets futures products apart is that they can only be sold to authorized investors—individuals who are deemed “sophisticated” and possess a substantial net worth.
All investors are eligible to purchase the new spot Bitcoin ETFs. Since they may be bought through brokers or through an app for discount brokers, millions of new investors may soon be able to invest in the cryptocurrency space.
SEC Commissioner Hester Perice stated, “He is celebrating the freedom of American investors to express their opinions on bitcoin by buying and selling spot bitcoin ETP.” Furthermore, he is praising the market players’ perseverance in attempting to introduce a product that they believe investors would be interested in.
Peircs cast a vote in favor of the ETFs along with the other three commissioners.
The path taken by the cryptocurrency sector to get here was not easy. Since the SEC started attempting to regulate cryptocurrencies in 2017 and former chairman Jay Clayton filed enforcement actions against multiple “initial coin offerings,” the regulatory control of this industry has been tumultuous. In his final move as SEC Chair, Clayton filed a lawsuit against international payments startup Ripple, alleging that the business violated securities laws by selling the token XRP to fund the platform’s expansion without first receiving approval from the SEC.
But given the regulatory limbo surrounding digital coins, judges have recently viewed the SEC’s attempts to regulate the cryptocurrency industry with skepticism. After three years in the courts, Ripple spent $200 million defending against SEC action. A U.S. district judge found that while the company’s sales of XRP to institutional investors, such as banks, did violate securities laws, they did not violate them when they were made to secondary market investors on cryptocurrency exchanges.
Biden appointment Gary Gensler, the current chair of the SEC, has taken an even more aggressive stance against the cryptocurrency business, bringing more than two dozen enforcement actions against it in 2023 alone. Several of those measures involved Coinbase and Binance, two major exchanges that intend to challenge the commission in court, much like Ripple did.
However, analysts claim that a specific setback made it possible for the Commission to approve the Bitcoin Spot ETFS. A DC appeals court decided in August 2023 that the SEC could not categorically reject Grayscale’s attempt to turn its Bitcoin Trust product into a Spot ETF, giving the company the victory over the agency.
The judicial panel’s decision to require the SEC to examine the application more closely was the clue that many potential ETF issuers had been waiting for—that courts prefer stricter regulations than those the SEC was seeking.
During the summer, numerous asset managers and cryptocurrency companies submitted proposals for spot bitcoin ETFs. By the end of 2023, 11 applications will have been submitted, including Bitwise and Cathie Wood’s Ark21Shares offering, which was already submitted earlier in the year.
Former bitcoin bear Larry Fink, the CEO of Blackrock, stated in October that he now views bitcoin as a global asset and a store of wealth. Experts claim that the approval of a Bitcoin Spot product was inevitable due to a shift in Wall Street’s perspective, pressure from the courts, and support from someone of Larry Fink’s stature—he oversees the largest money management in the world.
The way the agency required the ETFs to be structured—in-cash only, which means investors may only purchase and redeem shares of the ETF using cash, not bitcoin—says securities lawyers that Gensler’s contempt for the asset class was evident from the beginning. This is not like the conventional commodities-based exchange-traded funds (ETFs), where investors can buy shares using the underlying asset.
The SEC is still concerned about the cryptocurrency market’s lack of regulation and vulnerability to fraudulent individuals with bad motives.
Though it recently concluded that allowing investors to trade bitcoin in security-form on highly regulated exchanges is preferable to having small investors selling digital coins through opaque means, the SEC evaluated those issues when issuing the ETFs.
A string of errors by the SEC itself, such as a hack on the organization’s official X (formerly Twitter) account on Tuesday that gave the erroneous impression that the ETFs were ready to trade, added to the numerous obstacles the sector had to overcome before receiving permission on Wednesday.
Before the SEC reclaimed control of its account late on Tuesday, the price of Bitcoin surged over $48,000 due to the announcement. Gensler then used his personal account to withdraw the statement and notify the market that his agency’s account had been hacked.
Numerous observers in the sector assumed that the SEC would extend the deadline for clearance due to the enigmatic circumstances and unparalleled character of the incident. The SEC made another mistake minutes before Wednesday’s trading closed when it mistakenly publicized issuers’ application approvals too soon. It later took down the posts before making a formal statement following the 4 p.m. closing bell.
