In a historic day for the digital assets space, on January 10, 2024, the U.S. Securities and Exchange Commission (the “SEC”) greenlit exchange-traded funds (“ETFs”) that invest directly in Bitcoin, commonly referred to as spot Bitcoin ETFs.
In Wednesday’s landmark decision, the SEC approved the listing and trading of 11 spot Bitcoin ETFs, including BlackRock, Bitwise, Grayscale, Valkyrie, ARK 21 Shares, Invesco, VanEck, Wisdom Tree, Fidelity, Hashdex, and Franklin Templeton.
This marks a complete about-face for the SEC, which has denied spot Bitcoin ETF applications for over a decade. Starting in 2013 with the Winklevoss twins filing up until now, the SEC has rejected every application, citing concerns about market manipulation and lack of surveillance-sharing arrangements and liquidity.
The spot Bitcoin ETF approvals come a little over six months after BlackRock, the world’s largest global asset manager with approximately $10 trillion in assets under management, shocked the markets by jumping into the spot Bitcoin ETF race with its June 15 application.
What prompted the sea change? While the applications from so many reputable financial firms surely had an impact, a recent court ruling appears to have had the biggest impact. Last August, the D.C. Circuit Court of Appeals ruled unanimously that the SEC was “arbitrary and capricious” in its decision to reject Grayscale’s proposal to convert its Grayscale Bitcoin Trust (GBTC) into a spot BTC ETF. The court stated that the SEC failed to adequately explain why it approved the listing of bitcoin futures ETFs but not Grayscale’s proposed conversion. Stating that “in the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful,” the court granted Grayscale’s petition for review of its application and vacated the SEC’s order.
Indeed, in a Statement, SEC Chair Gary Gensler pointed to this court decision as part of the SEC’s impetus to approve the Spot Bitcoin ETF filings. Chair Gensler, however, included a warning that “[w]hile we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”
Crypto-friendly SEC Commissioner Hester Peirce released a scathing statement entitled, “Out, Damned Spot! Out, I Say!,” commending applicants’ “decade-long persistence in the face of the Commission’s obstruction” and commenting that “[t]his saga likely would have spanned well beyond a decade were it not for the DC Circuit ex-machina.”
The impact of spot Bitcoin ETF approvals in the U.S. should prove significant as it will provide Bitcoin access to a new class of investors, including registered investment advisors, retirement funds, and other institutions that have historically been precluded from this asset class. Spot Bitcoin ETFs should unlock Bitcoin for more than $30 trillion worth of advised wealth in the U.S. According to a recent report by Standard Chartered Bank, the spot Bitcoin ETFs could see significant inflows of $50 -$100 billion this year alone.