The crypto world is ready to take bitcoin ETFs to the masses. It needs the blessing of a longtime foe first.
The crypto world is betting its mainstream moment is here. That bet hinges on the blessing of Wall Street’s top cop.
The Securities and Exchange Commission is expected in the coming days to rule on whether 14 different money managers will be allowed to launch their own spot bitcoin exchange-traded funds.
These ETFs would allow everyday investors to get exposure to bitcoin (BTC-USD) without having to own it, trading it like they would a stock.
The approvals could also expand widespread acceptance of the world’s biggest cryptocurrency, making bitcoin a potential staple in 401(k)s, IRAs, and pension plans used by everyday people.
The applicants include some of the biggest names on Wall Street, from BlackRock (BLK) to Franklin Templeton (BEN), as well as a number of firms better known in the crypto world.
JPMorgan Chase (JPM) and Goldman Sachs (GS) are among the giant banks that have offered to help some of these money managers create and redeem shares of their new funds.
The challenge before the industry is that the SEC has in the past denied such applications, arguing the products were vulnerable to market manipulation. The regulator is also the industry’s most prominent adversary, having filed numerous lawsuits and enforcement actions against key players.
Those in the crypto world say there are signs that the SEC won’t stand in the way this time around and will give the green light to all 14 applicants at once.
Such optimism helped bitcoin surge 164% in 2023 and start 2024 by rising above $45,000, its highest level in nearly two years.
It is also helping investors move past the memories of 2022, when some of the industry’s biggest names were wiped out as the values of digital assets collapsed.
“The bitcoin ETFs will be the official nail in the coffin on that prior crypto winter,” Laurence Latimer, CEO and co-founder of crypto firm Dinara, told Yahoo Finance.
A number of applicants — including Bitwise, Hashdex, and VanEck — have already released teaser video ads ahead of what they expect to be their potential launch.
“Bitcoin’s time has arrived,” reads the tagline of the Hashdex spot.
But in a sign of how much is riding on these approvals, bitcoin tumbled nearly 10% earlier this week after one industry analyst floated a contrarian view of what the SEC may do.
Markus Thielen, head of research at crypto investment firm Matrixport, said in a note Tuesday that the SEC will reject all ETF applications this month and the products won’t get the green light until at least the second quarter. If that happens, bitcoin prices could fall by 20%, according to the note.
“While we have seen frequent meetings between the ETF applicants and staff from the SEC, which resulted in the applicants refiling their applications,” the note added, “we believe all applications fall short of a critical requirement that must be met before the SEC approves.”
The note cited general skepticism from SEC chair Gary Gensler, who has led the agency’s larger crackdown on the crypto world.
It also came as bitcoin trading volume spiked to highs not seen since the collapse of regional lender Silicon Valley Bank in March 2023.
A decade in the making
The crypto industry has been waiting more than a decade for this moment.
The first application to create a spot bitcoin ETF came in 2013 from crypto entrepreneurs and twins Tyler and Cameron Winklevoss, famous for their early role in the creation of Facebook. Since then, the SEC has denied more than 30 similar applications.
A key turnaround moment came last year in June when the world’s biggest money manager, BlackRock, filed for a spot bitcoin ETF. The interest from one of Wall Street’s biggest names sparked other asset managers to follow suit.
Another important development came last August when one of the ETF applicants, Grayscale Investments, won a key legal victory over the SEC. Grayscale had sued the SEC in 2022 after it wasn’t allowed to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin offering.
Its core argument was that the agency had already approved exchange-traded products that held bitcoin futures contracts and thus had “acted arbitrarily and capriciously.”
A three-judge panel of the District of Columbia Court of Appeals in Washington sided with Grayscale, saying the firm had “advanced substantial evidence” its product was similar to bitcoin futures ETFs previously approved by the SEC.
That forced the SEC to reconsider Grayscale’s spot bitcoin ETF application, along with others filed by rival money managers.
The SEC’s first deadline to consider these various ETFs is Jan. 10 for a joint offering from Ark Invest and 21Shares. Other deadlines are as late as April.
Let the race begin
ETF issuers and analysts say they believe the SEC will choose to approve all applications that pass muster by the earliest January deadline, so as not to give any first movers an advantage over the rest of the industry.
One of the applicants, Ark Investment Management CEO Cathie Wood, told Yahoo Finance that the dominant providers of spot bitcoin ETFs will be those that take in the most money from investors right out of the gate.
The winners “will be a few and it will be the most liquid,” she said.
Historically, launches for other bitcoin products have sent bitcoin’s price on a wild ride.
It happened in 2017 with the launch of the country’s first bitcoin futures contracts and then in 2021 with the SEC’s approval of the country’s first bitcoin futures ETFs. Prices soared and then fell by large amounts in the year following the launches.
This time around, “there’s good pent-up demand so you’ll see good flows,” Sandy Kaul, Franklin Templeton’s head of digital assets, told Yahoo Finance.
“But I think that the transformative flows are really going to come in about six months to a year when people start to see what these ETFs actually offer in terms of the portfolio performance.”
What is clear, she added, is that the approval of these products would offer “a real affirmation of the crypto ecosystem being a legitimate investment opportunity.”
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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