As was widely expected, the U.S. Securities and Exchange Commission on Wednesday afternoon announced via a statement from Chair Gary Gensler that it approved the listing and trading of 11 spot bitcoin exchange-traded funds.
This gives the green light to financial firms including the likes of BlackRock, Fidelity Investments, Grayscale and Franklin Templeton to offer institutional and retail investors exposure to the world’s largest cryptocurrency without directly holding it. The approval could be a game-changer for bitcoin, which has seen its price rise 61% since October largely on expectations that the SEC planned to grant approval of spot ETF applications. NASDAQ had bitcoin at $46,318.20, up $799.90 or 1.76% on the day as of 5:20 p.m. ET, after breaking through the $45,000 barrier for the first time in more than a year last Tuesday.
With today’s action, the SEC authorized exchanges like the New York Stock Exchange and Nasdaq to list the ETFs’ shares, and then approved the prospectuses submitted by each issuer. That means most if not all of the funds could start trading on Thursday.
Gensler: Action not an endorsement of bitcoin
The SEC’s announcement Wednesday had been expected since a federal appeals court ruled last August that the SEC must reconsider cryptocurrency asset manager Grayscale Investments LLC’s application to convert its bitcoin trust into an ETF.
“We are now faced with a new set of filings similar to those we have disapproved in the past. Circumstances, however, have changed,” Gensler said in his statement Wednesday, noting the court ruling. “Based on these circumstances and those discussed more fully in the approval order, I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares.”
Gensler added that importantly, today’s action is cabined to ETPs (exchange-traded product) holding one non-security commodity: bitcoin.
“It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities. Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws,” Gensler said. “As I’ve said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws.”
The statement went on to list certain protections for investors in light of the approval, and closed by emphasizing the action is not an endorsement of bitcoin.
“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,” Gensler’s said. “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.”
What is a spot bitcoin ETF?
A spot bitcoin ETF allows investors to gain direct exposure to bitcoin without holding it. As Morningstar points out, “Spot bitcoin ETF” is just the official name for an ETF that holds bitcoin, and performance of these ETFs should follow bitcoin prices closely, minus fees and the fund’s trading costs.
Unlike regular bitcoin ETFs, in which bitcoin futures contracts are the underlying asset, bitcoins are the underlying asset of a spot bitcoin ETF. A spot price is the immediately available price of a security. Futures prices, on the other hand, represent prices at a future date.
Each spot bitcoin ETF is managed by a firm that issues shares of its own bitcoin holdings purchased through other holders or through an authorized cryptocurrency exchange. The shares are listed on a traditional stock exchange.
Barron’s reported Monday that several potential ETF issuers published final details of their proposed funds. Grayscale Investments said it plans to cut the fee on its bitcoin trust to 1.5% from 2% if the investment vehicle converts as planned into an ETF. BlackRock said it plans to charge 0.3% for its own bitcoin fund, and 0.2% for the first $5 billion of assets over the first year.
Barron’s also noted in a post today that the lowest fee appearing in a fund prospectus so far comes from Bitwise Asset Management, which says it will charge a 0.2% annual expense ratio for its fund. A fund sponsored by ARK Invest and 21Shares will have a 0.21% fee, while VanEck and Fidelity come in at 0.25%.
In addition, some issuers including Bitwise, ARK/21Shares, and Invesco plan to waive their fees completely for six months for the first $1 billion to $5 billion in assets under management.
A big deal for bitcoin
Today’s SEC approval signals a landmark moment for both bitcoin and the broader cryptocurrency market, and could send prices skyrocketing in the longer-term with BTC prices perhaps hitting $60,000 this quarter, predicts Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations.
“This approval by the financial regulator of the world’s largest economy is a landmark moment for bitcoin and the wider crypto market”
Nigel Green, CEO of deVere Group
“This approval by the financial regulator of the world’s largest economy is a landmark moment for bitcoin and the wider crypto market and boosts prices in the long-term, even if there’s a sell-off in the near-term,” Green said.
“Institutional investors have long been cautious about entering the crypto space due to concerns about regulatory uncertainties and market integrity. The introduction of SEC-regulated bitcoin ETFs addresses these concerns by providing a transparent and secure investment vehicle, paving the way for institutional capital to flow into the market,” Green added.
Green called today’s approval a “watershed moment” for bitcoin and the entire crypto market.
“The institutional validation, massive influx of capital, increased accessibility, market integration, and global adoption are powerful catalysts that could send BTC prices to potentially near all-time highs,” he said. “On a tidal wave of investor enthusiasm, we wouldn’t be surprised if bitcoin hits $60,000 this quarter—and higher moving forward throughout the year.”
Potential impact on retirement accounts
The integration of a spot bitcoin ETF into 401(k) plan investment lineups could be a significant disruptor by providing mainstream retirement savers easy exposure to crypto in a now-regulated manner.
Plan sponsors have been hesitant to offer crypto investments within their 401(k) plans in light of 2022 guidance from the Department of Labor, which while not outright prohibiting crypto in retirement plans, strongly discouraged doing so.
While up to now there have been some limited options to own crypto within retirement accounts, including options from Fidelity and ForUsAll, more companies are expected to offer it within their 401(k) lineup now that the SEC has approved spot bitcoin ETFs.
Younger generations more comfortable investing in crypto
With the SEC action looming, NerdWallet today shared some key findings about crypto investments and investing outside of retirement accounts from its 2024 Investing Outlook Study that looks at Americans’ investing plans for the year.
- Many Americans plan to invest in 2024: 51% of Americans say they plan to invest outside of retirement accounts in 2024, while 60% say they’ll invest in tax-advantaged investments. Stocks (28%), mutual funds (20%) and cryptocurrencies (16%) top the list for investment plans.
- Younger generations are more comfortable investing in crypto: Close to half of both Gen Zers (45%) and Millennials (54%) say they’re comfortable investing in crypto, while 27% of Gen Xers and just 6% of Boomers say the same.
- Men are more likely than women to invest outside of retirement plans in 2024. Men (23%) were twice as likely as women (10%) to say they plan to invest in crypto next year.
SEE ALSO:
• Bitcoin ETF Approval Draws Closer with Grayscale Court Win Over SEC
• Gensler Signals Different Road is Quickest Way to a Bitcoin ETF