The US Securities and Exchange Commission (SEC), after facing considerable pressure, has finally approved spot bitcoin exchange-traded funds (ETFs), concluding a 10-year-long narrative.
This move allows a collection of ETFs from major firms like Blackrock, Fidelity, Ark Investments, Invesco, 21Shares, and VanEck to offer traditional investors direct access to Bitcoin through regulated US securities exchanges.
This decision marks a significant shift from the SEC, especially considering Chair Gary Gensler’s previous consistent rejections of ETF applications over the past decade. However, the landscape of Bitcoin in 2024 is markedly different from that in 2014. The intense demand from major financial institutions for bitcoin-based ETFs (or ETPs, meaning exchange-traded products) played a key role in persuading Gensler to reassess their value.
Despite approving these products, Gensler maintained a cautious stance and differentiated his support for the products from an endorsement of Bitcoin itself, which he labelled a “non-security commodity.” He emphasized the risks associated with bitcoin and crypto-related products, citing concerns about their speculative nature and potential use in illicit activities like ransomware, money laundering, sanction evasion, and terrorist financing.
Gensler also clarified that this approval should not be seen as a validation of cryptocurrency trading platforms or intermediaries, which he noted often operate outside federal securities laws and may have conflicts of interest. He warned of the SEC’s commitment to investigating fraud and manipulation in these securities.
The decision revealed a divide within the SEC. Commissioner Hester M. Peirce criticized the prolonged period of denial, labelling it “unnecessary” and “perplexing.” She highlighted the inconsistency in the SEC’s treatment of Bitcoin-related ETP applications compared to other ETPs over the past decade. Peirce argued that ETPs are a significant innovation that democratizes access to various asset classes and accused the SEC of missing numerous opportunities to fulfil its regulatory duties.
Peirce pointed out that the SEC’s change of heart was influenced by the recognition of effective measures to prevent fraud and manipulation, as evidenced by the correlation between CME bitcoin futures market prices and spot bitcoin markets over the past two and a half years. She noted that the SEC’s previous rejections deprived investors of a more convenient and investor-friendly way to access bitcoin.
The catalyst for this change was a recent judicial ruling in the case of Grayscale Investments versus the SEC. Judge Neomi Rao described the SEC’s earlier rejections as “arbitrary and capricious,” especially since futures-based bitcoin ETFs had been approved since 2022. This ruling was a significant factor in the SEC’s eventual approval of spot-ETF products this week.
