The Securities and Exchange Commission (SEC) made history last week when they announced their decision to approve a new asset class: spot bitcoin ETFs. The change will make it easier for investors to put their money into bitcoin without outright owning it; instead, firms will issue shares of their own bitcoin holdings for the trades.
The previous options for engaging with bitcoin – either buying and storing it directly or trading through bitcoin futures ETFs – left investors with extra costs and hassles, stopping many from taking the leap into the cryptocurrency. Now, investors can buy and sell bitcoin as easily as they would stocks or mutual funds, through the same brokerage account.
Investors had been asking the SEC to approve spot bitcoin ETFs for more than a decade, as they hoped the new product would lead to a broader acceptance of the industry, opening the door for other crypto products.
First Day of Trading
The SEC approved 11 applications by asset managers on its initial introduction of the class, including from BlackRock (BLK.N), Ark Investments/21Shares (ABTC.S), Fidelity, Invesco (IVZ.N) and VanEck.
The new spot bitcoin ETFs saw $4.6 billion worth of shares on the first day of trading as investors jumped at the opportunity to engage with the landmark products. The launch also lifted the price of bitcoin to its highest level since December of 2021, after rising more than 70% in recent months in anticipation of the approval.
However, by the end of the day, nearly all of the new ETFs posted price declines. Bitcoin also fell after its initial surge, landing at $46,090 or up 0.65%. C.K. Zheng, Chief Investment Officer at Crypto Hedge Fund ZX Squared Capital, said that he believes the spot bitcoin ETFs will be very shallow in the short term, but that opportunities for longer positions will open with material pullbacks in the bitcoin price.
Industry Doubts
The long-awaited approval of the ETFs by the SEC comes after years of rejections due to worries by the agency that they could be easily manipulated.
The agency only moved towards acceptance of the cryptocurrency after a court ruling in 2022 that stated the SEC was wrong to reject an application from Grayscale Investments to convert its existing Grayscale Bitcoin Trust into an ETF.
In a statement released on Wednesday after the approvals were announced, SEC Chair Gary Gensler, a known crypto skeptic, said that in light of the court ruling, this was “the most sustainable path forward”. However, he made sure to note that this did not mean the agency endorses bitcoin, calling it a “speculative, volatile asset” used to fund crime. Gensler also stressed that the approval was not a signal that the SEC would be easing up on its crackdown on crypto players flouting its laws.
Gensler isn’t the only one presenting doubts about the legitimacy and safety of bitcoin and the ETFs. Dennis Kelleher, CEO of Better Markets, claimed the approval of the ETFs was a “historic mistake”, warning that bitcoin was still vulnerable to fraud. Other executives called out bitcoin as a high-risk investment, and Vanguard, the largest provider of mutual funds in the US, said it had no plans to make the new ETFs available on its platform.
Looking to the Future
Despite the critics, some regulatory experts believe the bitcoin ETFs could pave the way for other crypto products, including ETFs tracking ether, the second-largest cryptocurrency.
As more money gets pumped into the digital currency, it will become easier and less intimidating to invest, and as support builds, it will get harder for the SEC to continue its “just say no to crypto approach”, as stated by Jim Angle, associate professor at Georgetown’s McDonough School of Business. Instead, Rajeev Bamra, SVP of Digital Finance at Moody’s Investors Service, recommends strengthening the regulatory framework around crypto as a way to adapt to the changing market and keep investors safe.
Only time will tell how this new product will perform, and what dangers, if any, it will pose. For now, it’s important for investors to stay knowledgeable on the industry and the risks it can pose before diving into cryptocurrency and related products.
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Colleen Douglas
Senior Marketing Coordinator
Executive Platforms
Colleen joined the Executive Platforms team in May of 2022. She has five years of experience in event marketing, with an emphasis on copywriting and digital strategies.
Colleen has a BA Honours in Business Communications from Brock University and a Diploma in Digital Media Marketing from George Brown College.