SEC Authorizes Bitcoin-Spot ETFs in Crypto’s Breakthrough (2)

US regulators for the first time approved exchange-traded funds that invest directly in Bitcoin, a move heralded as a landmark event for the roughly $1.7 trillion digital-asset sector that will broaden access to the largest cryptocurrency on Wall Street and beyond.

The Securities and Exchange Commission, whose three-part mandate includes investor protection, authorized funds from industry heavyweights BlackRock, Invesco and Fidelity to smaller competitors including Valkyrie to begin trading Thursday.

The approvals mark a rare capitulation by the SEC following opposition that lasted for more than a decade, ever since Tyler and Cameron Winklevoss first proposed a Bitcoin ETF in 2013. BlackRock Inc.’s surpriseapplication last June, followed by an appeals court ruling that called the denial of a different application “arbitrary and capricious,” triggered a blistering rally in the cryptocurrency amid speculation that US regulators would finally give their blessing to the structure.

WATCH: Jay Jacobs, BlackRock’s US head of thematics and active equity ETFs, discusses BlackRock’s launch of the iShares Bitcoin Trust, a spot Bitcoin ETF that began trading Thursday.

Source: Bloomberg

Read: Why the Bitcoin ETF Was Such a Long Time Coming: QuickTake

“While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin,” SEC Chair Gary Gensler said in a statement. “Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”

Previous Rulings

At the crux of the SEC’s previous rulings against a spot ETF was the argument that no regulated exchange was able to adequately monitor Bitcoin trading in a way that would reliably detect fraud and manipulation. That contention was opposed by Cathie Wood’s Ark Investments, among others, which provided data showing a high correlation between cash trading and the futures contracts that trade on CME Group’s platform.

In reviewing the latest set of proposals, the SEC said it examined the correlation between spot and futures trading at a variety of time intervals and concluded prices moved in such a way that irregularities on exchanges such as Kraken and Coinbase were likely to show up in the futures.

“Because the CME’s surveillance can assist in detecting those impacts on CME Bitcoin futures prices, the exchanges’ comprehensive surveillance-sharing agreement with the CME — a U.S. regulated market whose Bitcoin futures market is consistently highly correlated to spot Bitcoin, albeit not of significant size’ related to spot Bitcoin — can be reasonably expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the proposals,” the order said.

WATCH: SEC Commissioner Hester Peirce says the approval of Bitcoin ETF is “a big milestone.”

Source: Bloomberg

False Post

The decision comes a day after a false post on the SEC’s X account claimed that the agency had approved the ETFs. The regulator subsequently said that the account had been compromised, causing the price of Bitcoin to fluctuate widely.

Gensler voted alongside the agency’s two Republicans to back exchanges’ plans to list the products, the SEC’s website showed. The regulator’s two other Democrats voted against the proposals.

Speaking in an interview on Bloomberg Television’s “Balance of Power,” Hester Peirce, one of the agency’s GOP members, said she was “delighted” with the result. “There are still pieces of it to go, but this is a big milestone,” Peirce, who has been one of the industry’s most vocal supporters in Washington, said.

Bloomberg

Bitcoin briefly scaled $47,000 in a generally muted climb following the approvals. It was trading at $46,480 as of 12:42 p.m. Thursday in Singapore. The original cryptocurrency, which sank 64% in 2022, more than doubled in 2023 in large part because of speculation that the SEC would eventually approve ETFs.

The products allow investors to get exposure to the token in traditional brokerage accounts instead of via crypto-native startups that have come under increasing government scrutiny following a series of scandals and bankruptcies.

Retail, Institutional Investors

“The approval means that both retail and institutional investors now have the ability to diversify their portfolio with crypto exposure without worrying about the complicated issues of custody,” said Campbell Harvey, finance professor at Duke University. “The ETF makes it easy to add to your portfolio.”

Crypto proponents have for years argued that a so-called spot fund that invests directly in Bitcoin would be beneficial to investors and would help bring the industry closer to the more highly regulated world of traditional finance. It also suggests a sort of milestone of maturity for the relatively nascent industry, where skirmishes with regulators came to a climax after the collapse of Sam Bankman-Fried’s FTX empire highlighted risks lurking in the industry.

Ark Investment founder Cathie Wood talks about Bitcoin ETFs with Bloomberg Radio host Carol Massar.

The landmark decision comes after Grayscale Investments won a key victory over the SEC. A federal appeals court had overturned the rejection of Grayscale’s application to convert its Bitcoin trust into an ETF. The court called the denial “arbitrary and capricious” because the commission failed to explain its different treatment of similar products. ETFs that hold Bitcoin futures were approved in 2021.

The SEC’s loss to Grayscale was one of the reasons why the SEC approved the applications, Gensler said in Tuesday’s statement.

“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 said.

(Updates market prices in the 11th paragraph.)

--With assistance from Olga Kharif, Allyson Versprille, Kailey Leinz and Ben Bain.

To contact the reporters on this story:
Katie Greifeld in New York at kgreifeld@bloomberg.net;
Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story:
stacy-marie ishmael at sishmael@bloomberg.net;
Sid Verma at sverma100@bloomberg.net

Dave Liedtka, Michael P. Regan

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