A new wave of investment has been anticipated. Ahead of signs that the US is getting ready to legalize exchange-traded funds that make direct investments in cryptocurrencies, bitcoin is seeing a rise once more. The termed exchange-traded funds, or ETFs, have gained immense popularity among US investors. These kinds of cryptocurrency-focused products were often rejected by the US Securities and Exchange Commission for years due to concerns about volatility and possible manipulation. The market has been closely monitoring, though, as the regulator has until January 10 to take action on at least one application, and the SEC’s resistance seems to be waning.
What is the current situation?
In June of last year, BlackRock Inc.—the largest asset management globally—filed an application to create a spot Bitcoin ETF. As a result, the cryptocurrency market saw a significant uptick, and issuers including Fidelity Investments, Invesco, and WisdomTree resubmitted and applied for comparable ETFs in waves. Grayscale Investments LLC gained momentum in its effort to convert its Bitcoin trust into an exchange-traded fund (ETF) on August 29 after winning a court decision. After the SEC declared on October 13 that it wasn’t going to fight the decision, a federal appeals court confirmed it, and Bitcoin shot up to $35,000 for the first time since May 2022. Market observers, experts, and investors are waiting to see what action the SEC will take next.
What is a Bitcoin ETF?
Although they are a small subset of a larger family of goods known as exchange-traded products, people often refer to all of them as “ETFs” since they are by far the most well-known and popular. ETFs are a $7 trillion industry. Firms with a focus on cryptocurrencies and prominent Wall Street banks are attempting to introduce an exchange-traded fund (ETF) that stores Bitcoin rather than investing in Bitcoin futures. Futures are agreements to purchase or sell an item at a certain price at a later time. Although US investors can already purchase futures-backed Bitcoin exchange-traded funds (ETFs) since 2021, no applications for so-called spot Bitcoin ETFs have been authorized by the SEC. Investors and issuers are pushing for spot Bitcoin ETFs to be equally available to institutional and retail investors in the US. This is because they believe it will significantly increase the number of people who participate in the cryptocurrency market.
What was accessible earlier?
Due to high demand, the ProShares Bitcoin Strategy ETF opened on October 19, 2021, and became the first Bitcoin futures ETF accessible in the United States. Early in 2021, Purpose Investments Inc., the fund’s sponsor, launched the Purpose Bitcoin ETF (ticker BTCC), which invests directly in “physical/digital Bitcoin.” Volatility Shares, the issuer, introduced a leveraged Bitcoin-futures ETF in June. In October, a number of ether-futures funds launched. Some US investment trusts, on the other hand, have been tracking Bitcoin in a way that is comparable to exchange-traded funds (ETFs) but with some limitations. With Bitcoin in its possession, the Grayscale Bitcoin Trust (ticker GBTC) is physically backed.
Why did authorities avoid a Bitcoin ETF for such a long time?
Regulators are also worried that regular investors may not be able to withstand Bitcoin’s extreme volatility, given that the cryptocurrency has seen gains of 305% in 2020, a further 60% in 2021, and a 64% loss in 2022. These concerns are in addition to difficulties around manipulation and liquidity. The Securities and Exchange Commission (SEC) has also questioned whether funds would possess the data required to fairly value tokens such as Bitcoin, including the ability to confirm the ownership of the underlying coins. The absence of regulatory control and surveillance in the cryptocurrency markets raised worries about the possibility of fraud and manipulation, according to testimony provided by SEC Chairman Gary Gensler to the Senate Banking Committee in 2021. BlackRock and other issuers that have followed suit have suggested so-called surveillance-sharing agreements as a means of reducing the risk of fraud and market manipulation in an effort to relieve some of the SEC’s concerns. The go-to partner for market surveillance for ETF issuers is Coinbase Inc., the only publicly traded, pure-play spot-crypto exchange in the US.
