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The crypto world is ready to bring Bitcoin ETFs to the general public. First he needs the blessing of a long-time enemy.
The crypto world is betting that its dominant moment is here. This bet depends on the blessing of Wall Street’s top cop.
The Securities and Exchange Commission is expected to decide in the coming days whether 14 different fund managers will be allowed to launch their own Bitcoin spot exchange-traded funds.
These ETFs would allow ordinary investors to gain exposure to bitcoin (BTC-USD) without having to own it, trading it as if it were a stock.
These approvals could also broaden acceptance of the world’s largest cryptocurrency, making bitcoin a potential staple of 401(k), IRAs and retirement plans used by everyday people.
Candidates include some of the biggest names on Wall Street, from BlackRock (BLACK) to Franklin Templeton (BEN), as well as a number of more well-known companies in the crypto world.
JPMorgan Chase (JPM) and Goldman Sachs (GS) are among the giant banks that have offered to help some of these fund managers create and redeem shares in their new funds.
BlackRock, the world’s largest money manager, is among the applicants seeking SEC approval to launch a spot bitcoin ETF. (Fatih Aktas/Anadolu Agency via Getty Images) (Anadolu via Getty Images)
The challenge facing the industry is that the SEC has, in the past, denied such requests, arguing that the products were vulnerable to market manipulation. The regulator is also the industry’s most significant adversary, having filed numerous lawsuits and enforcement actions against key players.
Those in the crypto world say there are signs that the SEC will not stand in the way this time and will give the green light to all 14 applicants at once.
Such optimism helped Bitcoin jump of more than 150% in 2023 And start 2024 by surpassing $45,000, its highest level in almost two years.
It also helps investors forget memories of 2022, when some of the biggest names in the industry were wiped out by the collapse in the value of digital assets.
“Bitcoin ETFs will be the official nail in the coffin of this previous crypto winter,” Laurence Latimer, CEO and co-founder of crypto firm Dinara, told Yahoo Finance.
A number of candidates, including Bitwise, HashdexAnd VanEck – have already released teaser video ads ahead of what they expect to be their potential launch.
“The time for Bitcoin has arrived,” reads the slogan of the Hashdex spot.
But in a sign of the importance of these approvals, bitcoin fell nearly 10% earlier this week after an industry analyst offered a contrarian view of what the SEC might do.
Markus Thielen, head of research at crypto investment firm Matrixport, said in a note on Tuesday that the SEC would reject all ETF applications this month and that products would not get the green light until less in the second trimester. If this happens, bitcoin prices could fall by 20%, according to the note.
The story continues
“Although we have witnessed frequent meetings between ETF applicants and SEC staff, which resulted in applicants refiling their applications,” the memo added, “we believe that not all applications meet not a critical requirement that must be met before the SEC will approve.” “.
Securities and Exchange Commission Chairman Gary Gensler has consistently expressed skepticism toward the crypto industry. (Jonathan Ernst/REUTERS) (REUTERS / Reuters)
The memo cited general skepticism from SEC Chairman Gary Gensler, who has led the agency’s broader crackdown on the crypto world.
It also happened as bitcoin trading volume reached heights not seen since the collapse of regional lender Silicon Valley Bank in March 2023.
A decade in the making
The crypto industry has been waiting for this moment for over a decade.
The first application to create a spot bitcoin ETF came in 2013 from crypto entrepreneurs and twins Tyler and Cameron Winklevoss, famous for their early role in the creation of Facebook. Since then, the SEC has denied more than 30 similar requests.
Entrepreneurs Tyler and Cameron Winklevoss, who sought approval for a bitcoin spot ETF in 2013. (Lucas Jackson/REUTERS) (REUTERS/Reuters)
A key turnaround moment occurred last year in June when the world’s largest fund manager, BlackRock, filed for a spot Bitcoin ETF. Interest from one of Wall Street’s biggest names has prompted other asset managers to follow suit.
Another significant development occurred last August when one of the ETF applicants, Grayscale Investments, won a key legal victory against the SEC. Grayscale had sued the SEC in 2022 after it was not allowed to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin offer.
His main argument was that the agency had already approved exchange-traded products containing Bitcoin futures and had therefore “acted arbitrarily and capriciously.”
A three-judge panel of the District of Columbia Court of Appeals in Washington sided with Grayscale, saying the company had “advanced substantial evidence” that its product was similar to Bitcoin futures ETFs previously approved by the SEC.
This forced the SEC to reconsider Grayscale’s spot Bitcoin ETF application, as well as others filed by rival fund managers.
The SEC’s first deadline to review these different ETFs is January 10 for a joint offering from Ark Invest and 21Shares. Other deadlines are until April.
Let the race begin
ETF issuers and analysts say they believe the SEC will choose to approve all applications that are accepted before the January deadline, so as not to give early movers an advantage over the rest of the industry.
One of the candidates, Cathie Wood, CEO of Ark Investment Management, told Yahoo Finance that the dominant spot Bitcoin ETF providers will be those who receive the most money from investors up front.
The winners “will be a few and they will be the most liquid,” she said.
Cathie Wood, CEO of Ark Invest, is among the applicants seeking SEC approval to launch a spot bitcoin ETF. (Patrick T. FALLON / AFP) (PATRICK T. FALLON via Getty Images)
Historically, launches of other Bitcoin products have driven up the price of Bitcoin.
This happened in 2017 with the launch of the country’s first Bitcoin futures contracts, and then in 2021 with the SEC’s approval of the country’s first Bitcoin futures ETFs. Prices skyrocketed and then fell significantly in the year following the launches.
This time around, “there’s good pent-up demand, so you’ll see good flows,” Sandy Kaul, head of digital assets at Franklin Templeton, told Yahoo Finance.
“But I think the transformative flows are really going to happen in about six months to a year, when people start to see what these ETFs actually deliver in terms of portfolio performance.”
What is clear, she added, is that approval of these products would offer “a real affirmation of the crypto ecosystem as a legitimate investment opportunity.”
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas of finance.
The price of Bitcoin has increased by more than 150% in 2023. An earlier version of this article incorrectly stated that the increase was 164% through January 1.
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