Bitcoin ETFs (exchange-traded funds) are investment products that track the price of bitcoin and trade on regulated stock exchanges. They offer investors a convenient and cost-effective way to gain exposure to the cryptocurrency market without having to buy and store bitcoin directly.
Bitcoin ETFs have been a long-awaited and highly anticipated development in the crypto space, as they could potentially boost the adoption, liquidity, and legitimacy of bitcoin among institutional and retail investors. However, they have also faced significant regulatory hurdles and challenges in the United States, where the Securities and Exchange Commission (SEC) has repeatedly rejected or delayed the approval of numerous bitcoin ETF applications over the years.
This year, however, the prospects of bitcoin ETF approval seem to have improved, as several factors have converged to create a more favorable environment for the SEC to finally greenlight a bitcoin ETF. Here are some of the key developments and events that could pave the way for a historic decision by the end of 2023.
The SEC’s New Leadership and Approach
One of the main reasons for optimism is the change in leadership and approach at the SEC under the Biden administration. The new SEC chair, Gary Gensler, is widely regarded as a crypto-friendly and progressive regulator, who has extensive knowledge and experience in the field of blockchain and digital assets. He has taught courses on blockchain and crypto at MIT, and has expressed his interest and openness to innovation and experimentation in the crypto space.
Gensler has also signaled a more proactive and constructive attitude towards bitcoin ETFs, as he has indicated that he would prefer to see them based on spot prices rather than futures contracts. This is a significant departure from his predecessor, Jay Clayton, who was more inclined to approve bitcoin ETFs that relied on regulated futures markets rather than unregulated spot markets. Gensler has also suggested that he would be open to approving multiple bitcoin ETFs simultaneously, rather than giving a first-mover advantage to any single applicant.
Moreover, Gensler has appointed several crypto-savvy officials to key positions within the SEC, such as Alex Ohanian as director of corporation finance, Hester Peirce as commissioner, and Gabor Gurbacs as chief economist. These appointments could indicate a more balanced and nuanced approach to crypto regulation and innovation within the SEC. However he is a disappointment after delaying many times…
The Growing Demand and Competition for Bitcoin ETFs
Another factor that could increase the pressure on the SEC to approve a bitcoin ETF is the growing demand and competition for such products in the global market. According to Bloomberg’s senior ETF analyst, Eric Balchunas, there are currently 21 active bitcoin ETF applications pending with the SEC, from various issuers such as Fidelity, VanEck, WisdomTree, Valkyrie, NYDIG, Grayscale, ARK Invest, and BlackRock. These applications represent a diverse range of strategies, structures, and providers, reflecting the high level of interest and innovation in the bitcoin ETF space.
Furthermore, several other countries have already approved or launched bitcoin ETFs in their jurisdictions, such as Canada, Brazil, Germany, Switzerland, Sweden, Dubai, and Bermuda. These products have attracted significant inflows and trading volumes, demonstrating the strong demand and appetite for bitcoin ETFs among global investors. For instance, the Purpose Bitcoin ETF (BTCC), which was the first bitcoin ETF approved in North America in February 20233, has amassed over $1 billion in assets under management in less than six months.
The success and popularity of these foreign bitcoin ETFs could create a sense of urgency and FOMO (fear of missing out) for the SEC, as it risks losing its competitive edge and influence in the global financial market if it continues to lag behind other regulators in embracing crypto innovation. Moreover, it could also create a regulatory arbitrage opportunity for US investors who could access these foreign products through various platforms or vehicles, potentially exposing them to higher risks and costs than if they had access to a domestic bitcoin ETF.
The Increasing Maturity and Adoption of Bitcoin
A third factor that could sway the SEC’s decision is the increasing maturity and adoption of bitcoin as an asset class. Over the past year, bitcoin has witnessed remarkable growth and resilience in terms of its price performance, market capitalization, network security, liquidity, volatility, institutional involvement, mainstream acceptance, and social impact.
Bitcoin’s price has surged by over 300% since July of 2021, reaching new all-time highs above $69,000 in November of 2023. Its market capitalization has surpassed $1 trillion, making it one of the largest and most valuable assets in the world. Its network security has remained robust and reliable despite numerous attacks and challenges over its 14+year history. Its liquidity has improved significantly with the emergence and expansion of various platforms, venues, and services that facilitate the trading, custody, and settlement of bitcoin.
Its volatility has declined gradually over time, as it has become more widely distributed and diversified among different types of investors and users. Its institutional involvement has increased dramatically, as more and more corporations, hedge funds, asset managers, pension funds, endowments, and sovereign wealth funds have added bitcoin to their portfolios or treasury reserves. Its mainstream acceptance has grown exponentially, as more and more celebrities, influencers, politicians, regulators, media outlets, and organizations have endorsed or adopted bitcoin or its underlying technology. Its social impact has been profound and positive, as it has empowered millions of people around the world with financial inclusion, freedom, privacy, and sovereignty.
These developments have enhanced the credibility and legitimacy of bitcoin as a viable and valuable asset class that deserves recognition and regulation from the SEC. They have also addressed or alleviated some of the main concerns and objections that the SEC has raised in the past regarding bitcoin ETFs, such as market manipulation, fraud, custody, valuation, liquidity, arbitrage, investor protection, and public interest.
In conclusion, the approval of a bitcoin ETF in the US seems to be more likely than ever before, as several factors have converged to create a more favorable environment for the SEC to finally make a historic decision by the end of 2023. The SEC’s new leadership and approach, the growing demand and competition for bitcoin ETFs, and the increasing maturity and adoption of bitcoin are some of the key developments and events that could pave the way for a breakthrough in the crypto space.
A bitcoin ETF could potentially boost the adoption, liquidity, and legitimacy of bitcoin among institutional and retail investors, as well as enhance the innovation and efficiency of the financial market. However, it could also entail some risks and challenges for the crypto industry, such as increased regulation, taxation, centralization, and dilution. Therefore, investors should be aware of both the opportunities and pitfalls of a bitcoin ETF before making any investment decisions.
The SEC now has no other reasons but to approve the ETF!