On Jan. 10, the SEC approved 11 spot Bitcoin exchange-traded funds (ETFs), unprecedentedly allowing crypto-backed ETFs to trade on public markets. Within 24 hours, Bitcoin ETF trading volume ballooned to $4.6 billion, and Bitcoin price rose above $48,000 at one point. But the hype fizzled out quickly, with Bitcoin dropping more than 8 percent two days after the SEC’s milestone decision.
Spot Bitcoin ETFs were approved in a 3-2 vote by the commissioners of the SEC after a federal court ruled last August the SEC was wrong to reject an application by Grayscale Investments to list a crypto ETF. “Much of this was already priced in,” Roxanna Islam, head of sector and industry research at the indexing firm VettaFi, told Observer. “When Grayscale won its lawsuit against the SEC, we knew these spot Bitcoin ETFs were probably going to be approved.”
Bitcoin ETFs are marred with controversy. In a dissenting statement, Caroline Crenshaw, one of the five SEC commissioners, criticized widespread fraud allegations in the ETFs’ underlying crypto market, citing an analysis of 157 crypto exchanges that found “51 percent of the reported daily Bitcoin trading volume was likely bogus.” However, SEC Commissioner Hestor Pierce in her statement on the approval argued that “market manipulation is not unique to crypto” and that the SEC has “tools to address such issues as they appear.” Pierce has long advocated for the SEC to treat crypto just like any other asset class. “Congress did not authorize us to tell people whether a particular investment is right for them,” she said in her statement.
Cryptocurrency overall remains a polarizing subject in the financial industry. In an interview at the World Economic Forum in Davos last week, JPMorgan Chase CEO Jamie Dimon doubled down on his doubts about crypto, saying he does not care for the recent Bitcoin ETFs.
Other big players are more optimistic. On Jan. 17, BlackRock (BLK)’s iShares Bitcoin ETF (IBIT) became the first of its type to hit more than $1 billion in assets under management in its first week of trading. Fidelity, Ark21 and Invesco are other big firms that have introduced Bitcoin ETFs. BlackRock gained more inflows than competing asset managers in part thanks to its lower management fee of 0.2 percent (compared to Grayscale’s 1.5 percent, for example) and its broader name recognition.
VettaFi’s Islam views the SEC’s approval as a huge turning point for the crypto industry and expects the entrance of institutional investors to bring more stability to the underlying crypto market. “Now you have these big names like Fidelity and BlackRock with these products, and that provides comfort to investors who may have been nervous,” she said.
It is difficult to project Bitcoin ETFs’ future impact on the crypto market by looking at historical examples. While gold ETFs garnered similar hype when they were first launched in the early 2000s, Bitcoin has a limited supply, far more volatility and less oversight on the uses of the underlying asset.
In the near term, Bitcoin ETFs could disrupt major crypto exchanges. For example, Coinbase’s margin and trade volume is threatened by the low-cost and easy access of the Bitcoin ETFs, Reuters reported last week, as customers no longer need to create a digital wallet on Coinbase or similar platforms to gain exposure to crypto.
Also unclear is what future regulation the crypto market can expect from the SEC. Commissioner Pierce told Observer she hopes the agency can “change course” from the current direction of “one market in the U.S. and another in the world due to our lack of regulatory clarity.”
However, not all SEC Commissioners are on the same page. In his statement on the Bitcoin ETF approval, SEC Chair Gary Gensler said the agency “did not approve or endorse Bitcoin” and “nor does the approval signal anything about the Commission’s views as to the status of other crypto assets.”