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Understanding in One Read: Approval of Bitcoin Spot ETF Marks a Significant Game-Changer in the Cryptocurrency Industry Rules.
Finance Network News on January 11: The U.S. Securities and Exchange Commission (SEC) gave the green light to Bitcoin spot exchange-traded funds (ETFs) on Wednesday (January 10). Eleven ETFs were approved and scheduled to start trading from Thursday (January 11) local time, marking a significant shift in the rules of the cryptocurrency industry.
The cryptocurrency industry has been attempting to launch such products for over a decade. In 2013, the Winklevoss Bitcoin Trust submitted the first Bitcoin ETF application, followed by many asset management companies. However, the SEC rejected these proposals, citing concerns about their susceptibility to market manipulation.
A turning point occurred in August of the previous year when the U.S. Court of Appeals for the District of Columbia Circuit deemed the SEC's rejection of the Bitcoin spot ETF application from cryptocurrency fund Grayscale Investments as incorrect. The court criticized the SEC's decision as "arbitrary and capricious," emphasizing the need for a clear explanation of the differing treatment of Bitcoin futures ETFs and spot ETFs. This compelled the SEC to reconsider its position.
After a prolonged negotiation between the cryptocurrency market and the SEC, the SEC made a compromise on Wednesday, approving Bitcoin spot ETF applications from 11 issuers, including ARK Investments, BlackRock, Fidelity, Invesco, Bitwise, and Grayscale. The SEC has expedited the approval of these ETFs, with the earliest expected trading date on Thursday.
The launch of Bitcoin spot ETFs undoubtedly changes the game for Bitcoin, allowing institutional and retail investors to access the world's largest cryptocurrency without directly holding it.
How will ETFs operate?
In terms of operation, issuers will purchase actual bitcoins from cryptocurrency exchanges and have them stored by custody institutions such as Coinbase Global. These institutions will then issue the ETFs.
These Bitcoin ETFs will be listed on Nasdaq, the New York Stock Exchange, and the Chicago Board Options Exchange, with trading expected to start on Thursday at the earliest.
Competition among issuers in terms of fees is also intense. Overall, issuers plan to charge fees ranging from 0.2% to 0.8%, significantly lower than the average level in the overall ETF market. The lowest fee comes from Bitwise Asset Management, which only charges a 0.2% annual fee.
Furthermore, some issuers, including Bitwise, ARK 21Shares, and Invesco, have even announced plans to completely waive management fees for assets in the top 10 to top 50 billion dollars within six months.
In addition, to address concerns about market manipulation, Nasdaq and the Chicago Board Options Exchange have established a market surveillance mechanism in collaboration with the largest cryptocurrency exchange in the U.S., Coinbase.
Differences between Bitcoin spot ETFs and futures ETFs
The SEC had approved Bitcoin futures ETFs as early as 2021. These ETFs track agreements to buy and sell bitcoins at predetermined prices. However, these products cannot precisely track price movements. Additionally, futures ETFs typically involve futures contract operations, and the costs of rolling over futures contracts may impact returns, making these products less attractive to many investors.
Cynthia Lo Bessette, Head of Digital Asset Management at Fidelity, stated that the new products differ from the Bitcoin futures ETF approved in the U.S. in 2021. The latter invests in derivatives rather than digital assets themselves, while spot ETFs provide more options for investors interested in digital assets.
Bessette pointed out, "We have always believed that exchange-traded products (ETPs) based on spot prices will be an effective way for investors to gain exposure to Bitcoin. As a company, we remain committed to meeting the growing needs of investors, providing them with tools to support their choices, and facilitating secure entry into the market."
Advantages over direct purchase
Holding Bitcoin in dedicated cryptocurrency trading accounts usually involves several risks. Firstly, if investors purchase Bitcoin directly, they sometimes need to pay fees exceeding 1% of their purchase amount. Additionally, the cybersecurity records of some exchanges are poor, making them susceptible to hacker attacks, and investors' account credentials are easily lost, discouraging many investors.
The industry has also experienced a series of scandals, including the collapse of cryptocurrency exchange FTX, with its founder Sam Bankman-Fried convicted of fraud, and the recent admission of violating U.S. anti-money laundering laws by Binance, the world's largest cryptocurrency exchange. All these factors have kept many investors cautious.
In contrast, Bitcoin spot ETFs are listed on heavily regulated securities exchanges, allowing investors to hold Bitcoin exposure through traditional stock accounts without the complexity and risks of directly holding Bitcoin.
Furthermore, the structure of ETFs increases the likelihood of institutional investors accessing Bitcoin, as some institutional investors are prohibited from directly investing in alternative assets. Products like ETFs are expected to attract significant capital inflows, further expanding the Bitcoin market.
A spokesperson for Cboe Global Markets, the Chicago Board Options Exchange's global market, stated that ETFs will provide investors with a "transparent and regulated" way to track the price of Bitcoin. "This approval marks an important step in establishing cryptocurrencies as a tradable asset class, paving the way for new trading opportunities."
Moving towards the mainstream
Overall, the approval of Bitcoin spot ETFs is a significant victory for the cryptocurrency industry, enhancing the legitimacy of the cryptocurrency industry and further propelling Bitcoin into the mainstream.
Meanwhile, the long-standing tug-of-war between the cryptocurrency industry and the SEC can be considered concluded. In this unique battle, the cryptocurrency industry can declare victory.
Franklin Templeton ETF Product and Capital Markets Director David Mann, in an interview, stated that it is challenging to predict the initial capital inflows in the first few days. He expects the market to be "very excited" on the first day but also mentioned that interest and investment growth may be slower than people imagine.
However, SEC Chairman Gary Gensler maintains a cautious stance on cryptocurrencies like Bitcoin.
He stated, "While we have approved the listing and trading of certain Bitcoin spot ETP shares today, we have not approved or endorsed Bitcoin. Investors should remain cautious about the countless risks associated with Bitcoin and value and cryptocurrency-related products." |
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Post time 19-1-2024 13:32:13