On January 10th, 2024, the U.S. SEC approved ETFs (exchange-traded funds) that track the price of Bitcoin, changing the game rules in the cryptocurrency industry, which has been attempting to launch such a product for over a decade.
As we all know, since 2013, several asset managers have filed applications for bitcoin ETFs, but the SEC rejected them because they were vulnerable to market manipulation and volatility.
However, in August, a court recognized that the Securities and Exchange Commission (SEC) was wrong in rejecting Grayscale Investments’ application for a bitcoin ETF, prompting the agency to reconsider its position.
Let’s explore how ETFs operate, what lies ahead for this industry, and what CEOs of various cryptocurrency companies and influential figures in the industry think about it.
How will ETFs operate?
They will be listed on Nasdaq, NYSE, and CBOE. Their assets will include physical bitcoins purchased on cryptocurrency exchanges and stored through custodians such as Coinbase Global (COIN.O).
These products will track the benchmark of bitcoins. Some will follow an index provided by CF Benchmarks, a subsidiary of the cryptocurrency exchange Kraken, which aggregates trading data from various Bitcoin-USD markets operated by major cryptocurrency exchanges.
To address the manipulation issue raised by the SEC, Nasdaq and CBOE have established a market surveillance mechanism in collaboration with Coinbase, the largest cryptocurrency exchange in the United States.
The issuers plan to charge fees ranging from 0.20% to 0.8%, significantly below the market average for ETFs.
Perspectives of Influential Figures in the Cryptocurrency Space Regarding Bitcoin ETF
The first tweet that introduced us to bitcoins was the words of the legendary cypherpunk Hal Finney on January 11, 2009, shortly before he became the first person to download and receive Bitcoins (BTC) two days later.
— halfin (@halfin) January 11, 2009
The tweet by Hal Finney introduced the world to bitcoins, the then-niche internet token that, at the peak of its development, evolved into an asset worth trillions of dollars.
Exactly 15 years after Finney’s tweet, Bitcoin received its first spot exchange-traded fund (ETF), approved by the U.S. Securities and Exchange Commission (SEC).
Among the approved financial service providers are financial giants BlackRock (BLK) and Fidelity, as well as the well-known crypto fund Grayscale Bitcoin Trust (GBTC), which is now part of the ETF list. The fees for these products vary, starting from zero for the first few months (e.g., in ARK, Bitwise, and Invesco) and reaching 1.5% in the case of Grayscale.
Hal Finney, alongside Satoshi Nakamoto, was the first person to upload and launch the Bitcoin software. Unfortunately, Finney did not live to see this milestone, as he passed away in 2014.
Finney was confident that Bitcoin would grow rapidly, responding to an email from Nakamoto by naming the token’s price. He envisioned evaluating a portion of the total global household wealth, suggesting that each of the 21 million coins could one day be worth $10 million.
Initially, Bitcoin’s concept was that it should be directed against the establishment and operate outside traditional banking circles. However, its acceptance on Wall Street indicates that the token is now positioned for widespread growth as an alternative asset.
Opinion of Ark Invest CEO Cathie Wood
Statements by Gary Gensler have probably made everyone think, as he mentioned that, while they approved the ETF, they do not endorse and still do not support Bitcoin. Ark Invest CEO Cathie Wood, in turn, criticized SEC Chairman Gary Gensler for his statements.
“The SEC Chairman tarnished the entire cryptocurrency industry with his remarks after approval. I couldn’t believe his statements. These explanations essentially represent old thinking that suppresses innovation. Nevertheless, there are so many people interested in spot ETFs that even these statements won’t stand against this innovation. Because the approval of the ETF opens a new chapter for Bitcoin. I want to believe that we will become one of the top two providers thanks to the Spot Bitcoin ETF,” Wood said in an interview with Bloomberg, expressing confidence that the SEC still fears Bitcoin.
“Given the SEC’s concerns about BTC, institutions need to work more carefully on a new regulatory framework,” Wood concluded at the end of the Bloomberg interview.
Opinion of Binance CEO, Richard Teng
Binance CEO Richard Teng believes that Bitcoin ETFs will provide easier access to the cryptocurrency market, attracting more investors and liquidity.
“The approval this week illustrates a new level of acceptance, maturity, and implementation of the cryptocurrency market, providing the industry with greater authority and potential for further innovation,” notes Teng for itweb.
“A Bitcoin spot ETF will increase trust in the digital asset industry, strengthening the foundations of market trust for a broader audience. Direct investments in Bitcoin and various regulated instruments will coexist, allowing for diverse investment strategies and accounting for different risk profiles and preferences. This signals an exciting new era of acceptance and legitimacy not only for Bitcoin but also for the broader crypto space.” also added CEO Binance for interview.
According to Teng, while predicting the scale of new participants and market dynamics is not easy, it is helpful to note that the introduction of gold ETFs in 2004 led to seven years of positive price movement thereafter. In combination with the anticipated Bitcoin halving event this year, these events could ensure a dynamic Bitcoin market, he asserts.
President of The ETF Store, Nate Geraci’s Opinion
Nate Geraci, the president of The ETF Store, stated that investors are the “clear winners” when it comes to the latest proposed fees.
Honestly. These fees are sooo low and the ETFs will trade ABSURDLY tight (penny wide bid-ask spreads) and without any commissions on most platforms. Don't be surprised when the fee war leaks out beyond just the ETFs https://t.co/DWVMBi3ov8
— James Seyffart (@JSeyff) January 8, 2024
“There are six issuers with fees below 40 basis points — historically, this is a crucial threshold in the ETF space in terms of increasing investor interest,” Geraci told Blockworks. “I don’t think anyone predicted this, and it speaks to how fierce the competition in this category will be.”
Advantages and Challenges for Investors in Crypto Industry
Approval of Bitcoin ETF by the U.S. regulator is undoubtedly a positive fundamental factor for the crypto market. However, it may also have unforeseen advantages and challenging consequences; let’s examine them.
Advantages for Investors and the Industry
- A spot Bitcoin ETF allows investors to access Bitcoin prices without the complexities and risks associated with direct ownership of Bitcoins. This includes the creation of cryptocurrency wallets and accounts on crypto exchanges, some of which have poor cybersecurity records and are susceptible to hacking.
- The ETF structure also increases Bitcoin’s accessibility for institutional investors, some of whom are restricted from directly investing in alternative assets.
- For the crypto industry, a spot Bitcoin ETF represents a significant victory, enhancing the legitimacy of the cryptocurrency industry and pushing Bitcoin into the mainstream.
Challenges for Investors and the Industry
SEC’s Constant Delays:
The continuous delays from the SEC have dashed the hopes of crypto enthusiasts. The U.S. Securities and Exchange Commission (SEC) has prolonged the approval of spot Bitcoin ETFs.
In August 2023, decisions on applications for Bitcoin ETFs were postponed twice, negatively impacting the BTC price when it fell by 4% on August 31 due to SEC actions.
The next review of applications was scheduled for January 2024, and this time it was finally approved. Such events in the market trigger superinflation, where negative information causes a more significant drop in the asset than subsequent growth amid positive news.
In other words, each postponement of the Bitcoin ETF consideration has led to a sharp decline in the BTC price, such as the situation when the SEC, announcing approval of the Bitcoin ETF, also reported an account hack.
Traders’ Overinflated Expectations:
Despite having billions of dollars at their disposal from cryptocurrency funds like BlackRock, Fidelity, VanEck, and others, investing in the leading cryptocurrency after the approval of Bitcoin ETF will be gradual to avoid putting strong pressure on liquidity.
Buying cryptocurrency may be slow and gradual with purchase limits. Thus, Bitcoin ETF will have a positive impact only in the long term, with little effect on asset prices in the short term.
Potential High Volatility:
If cryptocurrency funds can invest billions in BTC, this will create additional pressure on order books, significantly increasing market volatility. It is especially interesting to see how funds will secure profits.
Logical Decision to Sell BTC Gradually:
With this approach, a situation may arise where thousands of BTCs will be sold at the same price in one place, leading to significant price fluctuations and potentially causing liquidity issues on some exchanges.
BTC Market Monopolization:
Concentrating large BTC volumes in the hands of institutional investors increases the centralization of the leading cryptocurrency. The approval of Bitcoin ETF may create a monopoly among various cryptocurrency funds.
Risk of Company Bankruptcy:
The market has witnessed cryptocurrency company scams, such as Terra and FTX exchange, along with recent failures of CZ and Binance. But what if a hypothetical cryptocurrency fund with 100,000 BTC capital becomes insolvent? This could happen due to a bitcoin price drop, high volatility, or improper risk management.
Company Bankruptcy Cascade:
The bankruptcy of BTC-holding companies poses the threat of cascading liquidations, where one bankruptcy triggers the sale of a company’s internal assets and provokes the next bankruptcy until the positions of the last traders are liquidated. Although this is unlikely in the case of a spot Bitcoin ETF, such a situation cannot be completely ruled out.
Overall, while the approval of a Bitcoin ETF brings numerous benefits, it also introduces challenges and potential risks for both investors and the cryptocurrency industry.
Outlook on Cryptocurrency Industry Evolution
The CEO of one of the largest European cryptocurrency exchanges emphasized that blockchain technology and cryptocurrencies can become useful tools for the global economy.
“We stand on the verge of mass integration of blockchain and cryptocurrencies into all spheres of our lives. Decentralized networks and limited emissions are what address the pain present in today’s economy. Bitcoin, in turn, will become the digital gold for the next generation, which will no longer perceive fiat currencies or precious metals as a basis,” stated WhiteBIT CEO Volodymyr Nosov at the DAYZERO.
Mass adoption of blockchain technologies and cryptocurrencies is imminent. This is evidenced by the overall increase in interest in them and the development of the crypto community worldwide, and in Ukraine in particular.
Blockchain technology deserves a special place. It is a unique database that enables the exchange of electronic information. Today, the cryptocurrency market holds leading positions worldwide.
“Cryptocurrency today is the money of the future. Proper investments can bring investors significant profits. In the end, with cryptocurrency, you pay for goods and services. Cryptocurrency is the financial future of Ukraine and the world,” commented Volodymyr Nosov for finyear.
The outlook for the future of cryptocurrencies is promising, as we stand on the verge of widespread integration of blockchain and cryptocurrencies into all aspects of life.
Decentralized networks and limited emissions address the challenges of the modern economy. It can be assumed that Bitcoin will become digital gold, and cryptocurrencies represent the money of the future, bringing significant profits to savvy investors and playing a key role in the financial future of the entire world.
The approval of spot Bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC) marks a significant milestone in the cryptocurrency industry. After years of regulatory scrutiny and multiple rejections, the endorsement of these ETFs opens up new avenues for both investors and the broader market.
Looking ahead, the global impact of Bitcoin ETFs on blockchain technology, digital assets, and the overall economy is poised to be transformative. The cryptocurrency market, buoyed by this regulatory green light, is entering a new era that will undoubtedly shape the future of digital finance.
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