The Securities and Exchanges Commission (SEC) has approved multiple spot Bitcoin ETF applications from major asset managers in a move that could signal a more mainstream adoption of digital assets.
Wisdomtree, BlackRock, and Fidelity are three of the 11 firms to have had applications accepted, with BlackRock’s iShares Bitcoin Trust and the WisdomTree Bitcoin Fund set to begin trading on Thursday (11 January).
In a statement, SEC chair Gary Gensler said: “Since 2004, this agency has had experience overseeing spot non-security commodity ETPs, such as those holding certain precious metals. That experience will be valuable in our oversight of spot bitcoin ETP trading.
“Though we’re merit neutral, I’d note that the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.
“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.”
Watershed moment
Spot bitcoin ETFs track the price of the cryptocurrency, rather than Futures ETFs which have been approved in the past.
Bitwise, ARK Invest, and Invesco all promised to waive their initial total fees prior to the approval.
The US-listed ETFs are not directly available in the UK to retail investors. However, Yoni Assia, CEO and co-founder of platform Etoro, labelled the decision a ‘watershed moment’ for the asset class and believes the move could lead to broader adoption.
She said: “The term ‘watershed moment’ can be a cliche, but in the case of today’s bitcoin ETF news, it could not be more justified. For 15 years, bitcoin has been growing in prominence as an asset class amongst retail investors, while in a reversal of traditional roles, institutional investors have remained largely on the sidelines waiting for traditional finance rails to be put in place.
“Today’s news provides an answer for institutional demand for bitcoin. It’s good news for crypto markets and supportive of our belief that bitcoin is an unstoppable technology. It is digital gold and taking a long term view, I believe that it represents the intersection of finance, economics and technology.
“For our users, retail investors, today’s news is positive as it will be supportive of the growth of bitcoin as an asset class, but I believe that the majority of ordinary investors will want to continue to buy and hold real BTC.”
Reacting to the approvals, LSEG Lipper global head of research Bob Jenkins said: “The reality is that investors seem intent on incorporating crypto into their portfolios, regardless of access to ETF products. Today’s approval for spot products may therefore represent an enhanced level of organized oversight and transparency to this asset class, so will likely benefit investors.”
Benjamin Dean, digital assets director at Wisdomtree, said the process is one that new technologies take as they go from niche interests through to mass adoption, similar to the path taken by radio, television, rocketry, video games and the internet, which all started out as hobbyist interests.
“One more step – in what is still a long path forward – for the digital asset ecosystem,” he added.
Laith Khalaf, head of investment analysis at AJ Bell, said the SEC’s decision is “a giant step for crypto into the mainstream” as it will open up new pools of capital and “potentially offer safer access to crypto through well-regulated and widely used fund providers”.
However, he warned it doesn’t spell a “slam dunk” that the UK regulator will approve their sale on home turf. “US ETFs are not available for sale in the UK because they don’t issue a Key Investor Document, so fund groups would need to launch funds specifically for the European or UK market,” he pointed out. “In 2021 the FCA banned the sale of ETNs (Exchange Traded Notes) containing ‘unregulated transferable cryptoassets’ – these contained really complex whizzy derivatives and financial engineering to gain exposure to the asset class.
“The reasons given by the FCA at the time were that crypto had no inherent value, was wildly volatile, rife with financial crime, and didn’t fulfil a financial planning need for investors. It’s difficult to make a case that any of that has changed.”
However, Khalaf added the the UK regulatory landscape “is also shifting”. “Crypto activities [are] being brought under the supervision of the FCA, so this may pave the way for crypto ETFs at some point in the future. If or when that might happen is anyone’s guess.
“The FCA is walking a bit of a tightrope here between keeping consumers safe and the government’s ambition to make the UK a global hub for cryptoasset technologies. Bitcoin has endured a number of scandals and huge price volatility, but large investment groups are clearly still interested in packaging it into a tradeable product for punters. This is presumably because there would be large consumer demand for Bitcoin ETFs, but sometimes you should be careful what you wish for.
“It’s hard to make a case that crypto fulfils a genuine financial planning need that can’t be met by other assets, but it definitely does open up investors to the possibility of very heavy losses.”
