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The cryptocurrency world is ready to bring bitcoin ETFs to the masses. He first needs the blessing of a long-time enemy.
The cryptocurrency world is betting that its mainstream moment has arrived. 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 money managers will be allowed to launch their own bitcoin spot exchange-traded funds.
These ETFs would allow everyday investors to gain exposure to bitcoin (BTC-USD) without having to own it, trading it as if it were shares.
The approvals could also expand widespread acceptance of the world’s largest cryptocurrency, making bitcoin a potential staple in 401(k)s, IRAs and retirement plans used by everyday people.
Candidates include some of the biggest names on Wall Street, from BlackRock (BLK) to Franklin Templeton (WELL), as well as a number of better-known companies in the cryptocurrency world.
JP Morgan Chase (JPM) and Goldman Sachs (GS) are among the big banks that have offered to help some of these money managers set up 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 Agency/Anadolu via Getty Images) (Anadolu via Getty Images)
The challenge facing the industry is that the SEC has denied such requests in the past, arguing that the products were vulnerable to market manipulation. The regulator is also the industry’s most prominent adversary, having filed numerous lawsuits and enforcement actions against major players.
Those in the cryptocurrency 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 candidates at once.
Such optimism has helped Bitcoin will increase by more than 150% in 2023 AND start 2024 above $45,000, the highest level in nearly two years.
It’s also helping investors move past memories of 2022, when some of the industry’s biggest names were wiped out by the collapse in the value of digital assets.
“Bitcoin ETFs will be the official nail in the coffin of the previous crypto winter,” Laurence Latimer, CEO and co-founder of cryptocurrency firm Dinara, told Yahoo Finance.
A number of candidates – included Bit by bit, HashdexAND VanEck – have already released teaser video ads ahead of what they expect will be their potential launch.
“Bitcoin’s time has come,” reads the slogan of the Hashdex commercial.
But in a sign of how much it is riding on these approvals, bitcoin plunged nearly 10% earlier this week after an industry analyst expressed a contrary view on what the SEC might do.
Markus Thielen, head of research at cryptocurrency investment firm Matrixport, said in a note Tuesday that the SEC will reject all ETF applications this month and that products won’t get the green light until at least the second quarter. If this happens, bitcoin prices could drop by 20%, according to the note.
The story continues
“Although we have witnessed frequent meetings between ETF applicants and SEC staff, which have resulted in applicants resubmitting their applications,” the statement adds, “we believe that all applications fail to satisfy a critical requirement that must be satisfied before the SEC approves.”
Securities and Exchange Commission Chairman Gary Gensler has consistently expressed skepticism about the cryptocurrency industry. (Jonathan Ernst/REUTERS) (REUTERS / Reuters)
The note cited the general skepticism of SEC Chairman Gary Gensler, who has led the agency’s largest crackdown on the cryptocurrency world.
This came even as bitcoin trading volume surged to levels not seen since the collapse of regional lender Silicon Valley Bank in March 2023.
A decade in the making
The cryptocurrency industry has been waiting for this moment for more than a decade.
The first request to create a bitcoin spot ETF came in 2013 from crypto entrepreneurs and twins Tyler and Cameron Winklevoss, famous for their early role in creating Facebook. Since then, the SEC has rejected more than 30 similar requests.
Entrepreneurs Tyler and Cameron Winklevoss, who sought approval for a spot bitcoin ETF in 2013. (Lucas Jackson/REUTERS) (REUTERS / Reuters)
A key turning point occurred last year in June, when the world’s largest money manager, BlackRock, filed for spot bitcoin ETFs. Interest from one of Wall Street’s biggest names has prompted other asset managers to follow suit.
Another major development occurred last August when one of the ETF’s applicants, Grayscale Investments, won a landmark legal victory over the SEC. Grayscale had sued the SEC in 2022 after it was not allowed to convert its Grayscale Bitcoin Trust (GBTC) in a bitcoin spot offering.
Its main argument was that the agency had already approved exchange-traded products that contained bitcoin futures contracts 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 “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, along with others filed by rival money managers.
The SEC’s first deadline to consider these various 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 pass muster by the first deadline in January, so as not to give any first mover 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 providers of spot bitcoin ETFs will be the ones taking the most money from investors right from the start.
The winners “will be few and it will be the most liquid,” he said.
Cathie Wood, CEO of Ark Invest, is among the applicants seeking SEC approval to launch a Bitcoin spot ETF. (Patrick T. FALLON / AFP) (PATRICK T. FALLON via Getty Images)
Historically, the launch of other bitcoin products has caused the price of bitcoin to soar.
It 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 soared and then dropped significantly in the year following launch.
This time, “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 will really come in about six months to a year, when people start to see what these ETFs actually offer in terms of portfolio performance.”
What is clear, he added, is that approval of these products would offer “a real affirmation that the crypto ecosystem is a legitimate investment opportunity.”
David Hollerith is a senior reporter at Yahoo Finance covering banking, cryptocurrencies and other areas of finance.
The price of bitcoin is up more than 150% in 2023. An earlier version of this article incorrectly reported the increase was 164% through January 1.
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