Author: Syedur Rahman 11 January 2024
Syed Rahman considers the significance of the US Securities & Exchange Commission approving the first ‘spot’ Bitcoin exchange-traded funds (ETFs).
The US Securities and Exchange Commission’s (SEC’s) approval of exchange-traded funds (ETFs) that track the price of bitcoin could mark the beginning of a new era for cryptocurrency.
The crypto sector has been trying for over a decade to reach this point. Previously, the SEC did not give the go-ahead on the grounds that bitcoin ETFs could be open to market manipulation. But it had to reconsider its stance after a court found last August that the SEC was wrong to reject Grayscale Investments' bitcoin ETF application.
As a result, the SEC has now approved applications from, among others, ARK Investments, BlackRock and Fidelity.
The ETFs will be listed on Nasdaq, the New York Stock Exchange and the Chicago Board Options Exchange (CBOE). Their assets will comprise physical bitcoin purchased from crypto exchanges and held via custodians, and they will track a bitcoin benchmark. Nasdaq and CBOE have created a market surveillance mechanism to overcome the SEC’s fears of manipulation.
This has to be viewed as a notable development for the crypto sector. A spot bitcoin ETF allows investors to gain exposure to the price of bitcoin without all of the risks of direct bitcoin ownership.
This may be appealing to many would-be investors that have been discouraged by recent crypto-related scandals, not least the high-profile collapse of crypto exchange FTX and its accompanying legal fall-out and Binance’s admission of breaking US anti-money laundering laws.
ETFs are listed on stock exchanges and available through retail investors' supervised brokerage accounts. They are regulated, accessible and, in more general terms, something that the more cautious or reluctant crypto investor would regard as a safer bet than many other crypto assets. The structure of ETFs and their availability is also likely to appeal to many institutional investors who are keen to be involved in bitcoin but barred from investing directly in alternative assets.
At this stage, many crypto commentators believe spot bitcoin ETFs could prove to be a magnet for huge amounts of investment. But, taking a long-term view, the spot bitcoin ETF may be of greater value for what it does to enhance the perception of cryptocurrencies as legitimate assets. It may prove to be the one factor that ensures bitcoin comes to be viewed as “normal’’ and part of the financial establishment.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.