Bitcoin exchange-traded funds (ETFs) have received the regulatory green light from the U.S. Securities and Exchange Commission (SEC), with trading commencing Thursday, 11th January, 2024.
This highly anticipated move is expected to simplify Bitcoin investments, making it accessible to Main Street investors without needing them to own the digital asset directly via a wallet.
The road to SEC Bitcoin ETFs approval
The journey for approval of spot Bitcoin ETFs in the United States began in 2013 when an entity linked to the Winklevoss twins submitted the first application to the SEC. Although this initial application was rejected, the SEC started approving Bitcoin ETFs based on futures products in 2021.
Repeated rejections of spot-based Bitcoin ETF applications were grounded in concerns over the unregulated nature of Bitcoin, posing too much risk for investors. In response, crypto asset manager Grayscale took legal action, suing the SEC to bring more clarity to the matter.
The SEC had a deadline of January 10 to offer a decision for just one of the 11 firms that applied to offer Bitcoin ETFs. On Wednesday it offered approval to all 11 of them.
However, it was BlackRock’s application for a spot Bitcoin product in June 2023 that generated momentum for the idea. As traditional finance giant BlackRock entered the arena, other major players such as Fidelity and Franklin Templeton followed suit. This collective move was interpreted as a positive signal for imminent regulatory approval, given the pivotal roles these firms play in the U.S. financial system.
While regulatory authorities and issuers engaged in discussions to resolve outstanding details, there were some last-minute hiccups. An unauthorized post on social media platform X from the SEC’s account on Tuesday prematurely announced approval, causing Bitcoin prices to surge past $48,000 before the SEC clarified that its X account had been compromised.
What does this approval mean for Bitcoin?
The SEC’s approval represents a crucial regulatory endorsement for the world’s largest cryptocurrency, potentially alleviating some investor concerns about entering the space. This green light not only introduces additional regulatory safeguards but also enables investors to engage with well-established financial firms. Nevertheless, SEC Chair Gensler advised investors to remain cautious and evaluate the risks associated with Bitcoin and related products.
He said in a released statement:
“While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin. Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto,”
Prior to this approval, retail investors seeking exposure to cryptocurrencies had limited options, primarily buying coins directly or investing in ETFs linked to cryptocurrency futures. With the introduction of spot Bitcoin ETFs, investors, particularly retail ones, gain easier access to Bitcoin without the need for a dedicated Bitcoin wallet. Instead, they can hold these ETFs in their brokerage accounts.
Industry analysts anticipate a significant influx of funds into Bitcoin spot ETFs, contributing to the substantial increase in Bitcoin prices observed in recent months.
