Industry responds to SEC's Bitcoin ETF approval

BITCOIN itself may not have responded in the way many analysts had expected, but yesterday's news that the US Securities and Exchange Commission granted approval for Bitcoin spot exchange-traded funds (ETFs) has been enthusiastically welcomed by industry leaders.

A Bitcoin ETF will allow investors to buy and sell shares of the fund as it tracks the price of Bitcoin without the investor having to directly own and store the cryptocurrency.

In a detailed document, the SEC gave the green light to 11 spot Bitcoin ETFs including Grayscale, BlackRock, VanEck, Bitwise, Fidelity, Franklin, Valkyrie, Hashdex, Ark Invest, Invesco Galaxy and WisdomTree.

The announcement failed to move the Bitcoin market - perhaps largely due to a fake announcement being made the previous day when the SEC's own Twitter account was hacked.

Industry leaders, however, were more vibrant in their response...

Nick Jones, Founder and CEO, Zumo, said: "Digital assets have now crossed the chasm to mainstream adoption and the future is very bright. With the stamp of legitimisation - and money flows - that US spot Bitcoin ETF approvals bring, crypto now has every chance to make good on its promises to democratise and update our financial system.

"Fundamental to that promise is that the Bitcoin and blockchain future should be a truly sustainable one. Following the COP28 summit promises made in Dubai, accessing Bitcoin fund products that take ESG factors into careful consideration must become a new normal. This is why we have disrupted the market by launching our Oxygen solution to help financial institutions differentiate themselves by aligning their digital asset activities with net-zero principles."

Brian Gallagher, co-founder of Partisia Blockchain: "While the Bitcoin ETF goes against the core value proposition of Bitcoin to bring decentralisation and self custody of funds; the SEC's approval - while not a surprise - is a welcome development, functioning as a new gateway to blockchain technology – the value that underlies the asset. Founders in the blockchain space will continue to do what they have always done: build solutions that focus on privacy, access, and security. This, combined with advances like the SEC's, will have a positive effect on the industry, as it takes cooperation at all levels to bring about the best blockchain technology has to offer."

Experienced crypto specialist lawyer Sam Tyfield of Shoosmiths, hinted at the potential for Ethereum's Ether to be next in line for a spot ETF.

"These approvals will permit institutions to gain exposure to cryptocurrencies and it will permit retail investors to gain exposure to cryptocurrencies with the protections afforded by the fact that they are buying/selling regulated securities on a regulated market," he explained.

"Bitcoin is not the only cryptocurrency or crypto asset. The likelihood is that the next round of ETF applications will be for spot ether. We understand that major ETF issuers and sponsors have applied for ether ETFs in the last few months – the applications will be working their way through the SEC’s approval process. If those applications are approved (about which the industry is bullish), then the likelihood is that the next few years will see the launch of ETFs with a great variety of crypto assets.

"The SEC’s approval of Bitcoin ETFs also is likely to prompt other regulators around the globe to follow suit."

Oya Celiktemur, Sales Director of Jacobi Asset Management, welcome the news.

"Not only will it help bring in new, institutional capital into the asset class but given the reputation and combined $17tn AUM of the asset managers whose ETFs have been approved, it is a big stamp of approval on digital assets as a high quality, institutional asset class," she said.

"European investors have had access to a bitcoin ETF since August through the Jacobi FT Wilshire Bitcoin ETF. It's great to be joined by such well established issuers in the US to help raise the profile of digital assets."

Farzam Ehsani, CEO at Johannesburg-based global crypto exchange VALR labelled the SEC announcement as a watershed moment for the asset class and industry.

"The approval has come nearly 15 years to the day since the Bitcoin network began.  This ushers in a new epoch where Bitcoin is accessible through traditional brokerage channels in the largest economy in the world and will form part of a wide set of investment portfolios and retirement plans," he said.

"It's important to note that nearly all the 11 ETFs that have been approved will have the custody of their Bitcoin provided by the teams at crypto exchanges such as Coinbase.

"I expect many jurisdictions to follow in the establishment of traditional finance products providing access to Bitcoin and other crypto assets. VALR is excited about providing custody solutions to traditional financial institutions in South Africa and beyond when the spread of this phenomenon reaches more shores.

"It's important to note that buying Bitcoin from an ETF differs in a very significant way from buying Bitcoin on an exchange. In the former, you are entrusting the custody and security to a third-party and paying an annual fee for this. On an exchange you can buy the underlying Bitcoin and take self-custody of it and use the Bitcoin for payments or trading. This is not possible via an ETF.”

Former Goldman Sachs star trader Mona El Isa, who left traditional finance world to set up DeFi platform, Avantgarde Finance said the move held immense significance for the cryptocurrency industry.

"It has the potential to bring substantial capital into the market, potentially in the billions, as investors seek exposure to Bitcoin through a trusted and regulated vehicle," she said.

“Unlike futures ETFs, which track Bitcoin's price through derivative contracts, a spot ETF would directly hold the underlying asset. This means that it could create organic demand for Bitcoin itself, potentially driving up its value as more investors, including institutional allocators like BlackRock and Fidelity, seek to hold the asset within the ETF. This, in turn, could have a cascading effect, further solidifying Bitcoin's position in the global financial landscape."

In terms of the balance of power, El Isa suggested the approval of a Bitcoin spot ETF signified a growing acknowledgment of cryptocurrencies within traditional finance.

"It can lead to increased collaboration between crypto and Wall Street, ultimately reshaping the dynamics of the industry as we know it," she added.

"It's important to note that this development could mark just the beginning of a broader trend. The approval of a Bitcoin spot ETF would be a significant step, but it's also worth keeping an eye on the nascent trend of Ethereum (ETH) futures and spot ETF applications. Now the Bitcoin applications are approved, Ethereum ETFs could represent the next wave of adoption for Wall Street.

"The approval of both Bitcoin and Ethereum ETFs could open the door to a new era of mainstream tokenization with implications far beyond the crypto industry itself. These developments highlight the evolving landscape and the growing importance of digital assets in the global financial ecosystem."

Antony Abell, CEO and co-founder of London-based TPX™ Property Exchanges Group of Companies said: "Yesterday's SEC announcement approving 11 US Bitcoin ETFs is not only about a new type of ETF but it is in effect an announcement of the birth a global 'Central Bank of Bitcoin'.

"The recently approved US based ETFs have to acquire and hold BTC and they are currently subject to cash settlements. These US based ETFs will consolidate ownership of BTC in privately owned, US approved, financial institutions. This classic consolidation is history repeating itself.

"As the US government did with the forced private central bank collection of gold by the Federal Reserve in 1933 (Gold Confiscation Act of 1933) and the privately owned Bank of England did in 1680-1900 via mercantilism and their aggregation and control of British gold, so today has the SEC now given their authority to a number of apex brand name US financial institutions to grab a globally recognised inflation resistant global asset (the new BTC ‘gold) for their own ultimate control.

"The effect of this for the global market is that the USA has now captured the most viable inflation resistant money in the world with the global liquidity of this asset is now being centrally concentrated in the USA, using the US dollar and under US regulatory authority in conjunction with their privately owned financial institutions for their own control. Such a move is not a decentralisation of money as many believers in blockchain and the ensuing cryptocurrencies had originally aspired it to be. It is instead a centralisation of the uncontrolled, decentralised money that they had all had hoped that BTC would be. The catalyst for this action is the greed of a few against the greater societal interests of the many and it will undoubtedly come with consequences that will undermine the decentralised nature of BTC and and its greater societal value. 

"For the traders and arbitrage experts in our midst there is however good news in the ETF announcements and that is undoubtedly that the BTC 'number goes up' even while its true value as a decentralised version of inflation resistant money will go down over time as the history money once again repeats itself."

Jean-Baptiste Graftieaux, CEO of Bitstamp said: “The SEC’s approval of Bitcoin ETF is a significant milestone for the crypto industry, providing a well-known entry point to the world of cryptocurrency for those who have been observing from a distance. With this approval, exchanges have a responsibility to supply market surveillance data to ETF providers, helping to instil confidence in mainstream audiences looking to invest in crypto.

"With a spot ETF being first listed in Europe last year, the industry will benefit from a more global, cohesive regulatory approach, with the potential for more digital assets to step into the ETF spotlight.

"However, the sector must collaborate effectively to guarantee that crypto ETFs are equipped with the necessary safeguards to prevent fraud, market manipulation and ultimately, protect investors.”

Fadi Aboualfa, Head of Research at Copper - the digital assets custodian for several ETP providers, such as 21 Shares - immediately branded the approval as a pivotal moment for cryptocurrency.‍

"Over five years since what was seen as the first Bitcoin bubble, we now enter a new open market era where bad actors have been removed and the development of the digital asset ecosystem will be in line with the regulatory protections investors expect," he said.‍

“The bigger story behind the Bitcoin ETF approval is why and how the industry has finally crossed this milestone over a decade after the first application. Since the start, the SEC has always asked for surveillance sharing agreements with markets of significant size; clearly the regulator believes that the cryptocurrency markets have matured and are in fact efficient, transparent, and void of market manipulation that would not allow them to protect investors, a key part of their mandate."

Matteo Greco, Research Analyst at digital asset and fintech investment business Fineqia International: "The volatility in the aftermath of the announcement was nearly non-existent, likely influenced by the previous false news that was momentarily believed to be true. This false information, released just 24 hours prior, initially spurred a price increase, followed by a sell-off that brought the price below $45,000 before rebounding and stabilizing around $46,000.

"The news was revealed with BTC trading at approximately $45,000, showing minimal initial volatility. However, the market response was positive, with BTC surging above $47,000 hours after the official announcement and various altcoins experiencing a robust uptrend. Rumours suggest that the 11 approved ETFs could launch with a cumulative Assets Under Management (AUM) of around $4 billion, indicating a substantial initial influx.

"It's crucial to note that the approval also encompasses the conversion of Grayscale Bitcoin Trust (GBTC) into an ETF, which might result in an outflow from the product. GBTC currently holds over 600,000 BTC, and many customers were unable to redeem their shares in previous years due to the product's structure. This conversion provides an opportunity for these customers to redeem their shares, especially considering the comparatively high fee announced by Grayscale compared to its competitors.

"Grayscale has announced a 1.5% management fee, while most competitors will have a management fee ranging between 0.2% and 0.3%. This discrepancy could lead to an initial outflow from Grayscale's product in favour of competitors. However, the impact of this movement may be mitigated by the fact that redeeming shares from Grayscale would trigger a taxable event, potentially dissuading customers from making such a move."

Peter Habermacher, CEO and co-founder of Aaro Capital: "We believe the significance of this decision lies beyond just the liquidity that this may inject into the crypto markets due to fresh money coming in. This would create an easy and low operational risk access point for, in particular, US RIA managed money, who are the gate keepers for around $5 trillion in assets, as well as similar wholesale investors in the US and around the world. 

“More importantly, it has a symbolic significance for the industry, which may still be immature but full of attractive investment opportunities. In addition, this decision exemplifies how major regulators around the world are getting to grips with this fast-evolving industry. It would give the first official stamp of approval from the SEC which is considered the most hostile major financial regulator towards crypto globally outside of China.

"In addition, we expect this to be the first of many such stamps of approval. This is particularly symbolic from the SEC given the primary reason for the rejection of a bitcoin ETF to date has been the possible manipulation of crypto markets. Therefore, this decision could possibly be interpreted as the SEC seeing an end in sight for their crusade to ensure safe and reliable crypto finance infrastructure.”

“It remains our strong conviction that the most effective way to gain exposure to investment opportunities in this fast-growing asset class are afforded by professionally managed funds of funds portfolios, which can deliver various mixes of risk and returns based on the individual strategy’s objectives.”

According to Aaro Capital’s research, actively managed funds in the digital assets space have outperformed passive investment approaches by well over 100% with around a third less volatility and just over half of the maximum drawdown since the start of the Aaro Capital Fund Indices (ACFI).

“These indices are based on our proprietary database with 1000+ liquid crypto funds, which we believe is the largest in the industry," Habermacher added.

"We expect this trend of active management outperformance to continue in 2024, driven by inefficiencies and volatility in the underlying digital assets which warrants careful risk management ensuring downside risk protection while capturing most of the upside.

“Looking forward, we see plenty of opportunities for all types of investment approaches driven by strong secular growth of digital assets. We believe there is a benign period ahead not just for Bitcoin and Ethereum but a range of altcoins and other investment opportunities derived from the burgeoning applications for blockchain technology.”

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