US regulators have made a historic decision by authorizing exchange-traded funds (ETFs) that directly invest in Bitcoin. This breakthrough move is expected to have a significant impact on the digital asset sector, making the largest cryptocurrency more accessible to Wall Street and beyond. The Securities and Exchange Commission (SEC) granted approval to industry giants such as BlackRock, Invesco, and Fidelity, as well as smaller competitors like Valkyrie, to begin trading Bitcoin ETFs on Thursday.
SEC authorizes ETFs to launch after a decade of denials
This development marks a rare surrender by the SEC, which had opposed the idea of a Bitcoin ETF for over a decade. The Winklevoss twins first proposed a Bitcoin ETF in 2013, but it faced continuous denial until now. However, BlackRock’s surprise application in June last year, coupled with an appeals court ruling criticizing the denial of a different application, sparked speculation that the SEC would finally give its blessing to the structure.
While approving the listing and trading of certain spot Bitcoin ETP shares, SEC Chair Gary Gensler emphasized that the approval did not imply endorsement or approval of Bitcoin itself. Gensler urged investors to remain cautious about the risks associated with Bitcoin and crypto-related products.
The SEC’s previous objections to a spot ETF centered around concerns that no regulated exchange could effectively monitor Bitcoin trading to detect fraud and manipulation. However, proponents like Cathie Wood’s Ark Investments argued that there was a high correlation between cash trading and Bitcoin futures contracts traded on the CME Group’s platform. The SEC, after reviewing the latest proposals, found that irregularities on exchanges such as Kraken and Coinbase would likely show up in the futures due to the correlation.
The SEC’s decision comes after a false post on the agency’s compromised X account claimed that the ETFs had been approved, causing significant price fluctuations in Bitcoin. Gensler voted alongside the SEC’s two Republicans to support the listing of the products, while the two Democrats opposed.
Hester Peirce, one of the SEC’s GOP members, expressed delight with the outcome, calling it a significant milestone. The approval of Bitcoin ETFs allows both retail and institutional investors to diversify their portfolios with crypto exposure without worrying about custody complexities. It also signifies a level of maturity for the cryptocurrency industry, bringing it closer to the more regulated world of traditional finance.
This landmark decision follows Grayscale Investments’ victory over the SEC, as a federal appeals court overturned the rejection of Grayscale’s Bitcoin trust conversion into an ETF. The SEC’s failure to explain its different treatment of similar products led to the court calling the denial “arbitrary and capricious.” In 2021, ETFs that hold Bitcoin futures were approved.
The SEC’s loss to Grayscale was cited by Gensler as one of the reasons for approving the applications. Bitcoin briefly reached $47,000 following the ETF approvals. The ETFs will provide investors with a convenient way to gain exposure to Bitcoin through traditional brokerage accounts, rather than relying on crypto-native startups that have faced increased scrutiny and challenges.