The US Securities and Exchange Commission (SEC) has granted approval for the first spot bitcoin exchange-traded funds (ETFs), marking a major development in the cryptocurrency market. This move is expected to attract both retail and institutional investors into the digital asset space.
The approval covers a total of 11 ETFs, sponsored by established players such as Fidelity and Invesco, as well as digital-focused newcomers like Grayscale and Ark Invest. These ETFs will be tradable on exchanges and will benefit from special tax treatment in the United States.
BlackRock’s iShares Bitcoin Trust is set to be the first ETF to commence trading, with the opening bell ceremony scheduled to take place at Nasdaq on Thursday morning. This approval comes after a legal battle and months of anticipation.
However, the SEC faced a minor setback when hackers briefly took control of the commission’s social media account and falsely claimed that the applications had already been approved, causing fluctuations in bitcoin’s price.
The approval of spot bitcoin ETFs is expected to usher in a new era for the cryptocurrency, as US investors will now have a regulated product to gain direct exposure to bitcoin without dealing with the risks of unregulated exchanges or the higher costs associated with futures-based ETFs.
While some enthusiasts believe the approval of these ETFs will significantly boost demand for digital assets, others remain skeptical. Consumer protection and investor groups have cautioned that the availability of bitcoin ETFs could entice retail investors to put their money into a volatile sector known for scandals and price fluctuations.
SEC Chair Gary Gensler emphasized that the approval of spot bitcoin exchange-traded products (ETPs) should not be seen as an endorsement of bitcoin. He urged investors to remain cautious and be aware of the risks associated with cryptocurrencies.
The approved ETFs have different investment strategies. Grayscale, for example, plans to convert its existing bitcoin trust into an ETF, whereas Hashdex intends to convert a bitcoin futures fund into a spot ETF.
A price war has already begun among the new ETF providers, with companies like BlackRock and Fidelity announcing fees of under 0.5% and waiving charges during the initial months of trading. Grayscale has reduced its fee to 1.5% but does not plan to make further cuts due to its unique position as a conversion from an existing product.
Unlike traditional ETFs that use in-kind transactions involving underlying assets, the approved spot bitcoin ETFs will use cash to create and redeem new shares.
The SEC has been reluctant to approve spot bitcoin ETFs for almost a decade. However, it did permit ProShares to launch ETFs holding bitcoin futures in 2021. Following Grayscale’s lawsuit contesting the SEC’s rejection of an earlier spot bitcoin ETF application, other well-known ETF providers submitted their own applications and collaborated with the commission to refine their proposals.
The SEC’s approval of spot bitcoin ETFs is seen as a significant milestone for bitcoin’s acceptance as a traditional investment. It is expected to foster further growth and development in the cryptocurrency market.
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