One of the biggest news stories in the world of investing has to be all the drama surrounding the pending approvals of spot bitcoin ETFs. Bitcoin and other digital currencies have taken the world by storm, and like many asset classes, ETFs were seen as a great way to democratize digital currencies, allow access to a variety of investors, and bring crypto into the mainstream.
The battle to get so-called spot ETFs approved has been a long one – full of lawsuits, delays and SEC inaction.
But, it looks like the day is finally here. With a single stroke of a pen, the SEC has now approved 11 different spot bitcoin ETFs, with nine new funds. It’s been a long road, but the sector is finally getting started.
A Long Time Coming
While it seems like a lifetime ago, bitcoin, NFTs and other digital currencies were once the talk of the town. During the pandemic, crypto was THE asset class, with bitcoin prices surging and plenty of investor money flowing into the industry. It’s here that the first ETFs designed to track bitcoin were proposed.
However, those first ETFs were bitcoin futures ETFs, designed to track futures on the CME exchange, rather than spot pricing. Spot ETFs were just a pipe dream, as the SEC continued to worry about bitcoin as an asset class.
Remember that after the pandemic we saw plenty of fraud with several major digital currency exchanges, such as FTX and Celsius, filing for bankruptcy. Crypto prices crashed, while other digital assets, such as NFTs, became worthless. To this end, the SEC wanted more security measures and other provisions to ensure the safety of spot bitcoin ETFs. Futures and spot prices differ in that one is current pricing and the other is looking into the distance. Prices today tend to react in a more volatile manner than future ones, as investors often have weeks or even months to really evaluate futures conditions.
With that in mind, the SEC shelved spot bitcoin ETF approvals.
A Series of Big Changes
The ice around spot bitcoin ETFs began to seriously thaw this summer as several new factors came into play.
For starters: Grayscale’s key legal win against the regulatory agency for its Grayscale Bitcoin Trust (GBTC). GBTC was technically a closed-end fund, and Grayscale had hoped to turn it into an ETF. The SEC had been fighting the asset manager, until Grayscale sued and won a landmark case. With this, GBTC could potentially be turned into an ETF once the SEC gives its final approval.
The second major win could be BlackRock’s involvement. After standing on the sidelines, the $10 trillion asset manager decided to launch its own spot bitcoin ETF. The key for BlackRock was that it seemed to quell some of the SEC’s fears. The regulatory body was concerned about fraud and money laundering. Via a secondary filing, BlackRock added a level of security through surveillance, which would track customer identification and market trading data. Thereby, removing many of the problems with security and fraud that the SEC takes issue with. The agency seemed to like the idea, and many other issuers – such as WisdomTree, Invesco, Fidelity, Ark and Bitwise – added similar language and the requirement to their filings.
The final win for the sector came recently. One of the most important jobs in all of the ETFs are the authorized market participants (APs). APs have the job of creating the ETFs on the primary markets: exchanging cash and assets for shares of the ETF. Likewise, they accept assets back from the funds. Without APs, ETFs can’t function. The importance of big-name and trustworthy APs was vital in helping to calm the SEC. The news that BlackRock was partnering with mega-investment banks Goldman Sachs and J.P. Morgan to use as its APs, seem to come as a relief for the overall bitcoin industry. Since the announcement, Cantor Fitzgerald and Jane Street also announced that there would be APs on several bitcoin ETFs. With several major Wall Street names now onboard, the SEC’s fears are starting to abate.
SEC Hits the Button
With a deadline approaching for approval or denial for Ark’s bitcoin ETF – the first to file – the SEC was under pressure. With many of its fears now assuaged and facing pressure from investors and even Congress after Chair Gary Gensler’s grilling by various subcommittees, the agency approved spot bitcoin ETFs in a big way.
With a single stroke of a pen, the agency changed a series of rules – Section 19(b)(1) of the Securities Exchange Act of 1934 (The Exchange Act) – and gave the go head to 11 different spot bitcoin ETFs. This included funds from Ark, BlackRock, VanEck, WisdomTree, Franklin Templeton, Grayscale, Invesco and several other smaller issuers.
Bitcoin Spot ETFs approved by SEC
These ETFs were approved by the SEC in January 2024. They are sorted by their assets under management, which range from $4.8M and $25B. They have expenses between 0.19% and 1.5%.
| Ticker | Name | AUM | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|
| GBTC | Grayscale Bitcoin Trust | $24.8B | 1.5% | ETF | No |
| IBIT | iShares Bitcoin Trust | $1.07B | 0.25% | ETF | No |
| FBTC | Fidelity Wise Origin Bitcoin Fund | $523M | 0.25% | ETF | No |
| BITB | Bitwise Bitcoin ETF | $355M | 0.20% | ETF | No |
| ARKB | ARK 21Shares Bitcoin ETF | $323M | 0.21% | ETF | No |
| BTCO | Invesco Galaxy Bitcoin ETF | $199M | 0.39% | ETF | No |
| HODL | Vaneck Bitcoin Trust ETF | $91.7M | 0.25% | ETF | No |
| BRRR | Valkyrie Bitcoin Fund | $63.4M | 0.25% | ETF | No |
| EZBC | Franklin Bitcoin ETF | $49.5M | 0.19% | ETF | No |
| DEFI | Hashdex Bitcoin Futures ETF | $16.6M | 0.94% | ETF | No |
| BTCW | WisdomTree Bitcoin ETF | $4.8M | 0.30% | ETF | No |
For investors, this is huge news. For the retail set, it adds a layer of safety that perhaps wasn’t there before. With trusted names like BlackRock and Fidelity now in the mix, many conservative investors may be at ease owning crypto as an asset class. Moreover, the ease of owning an ETF in their IRAs or other retirement account provides access to the bulk of retail investors’ money. Moreover, the taxes that occur with digital assets are lessened now that it’s tucked away inside a fund.
For institutional investors, it unlocks crypto as an asset class. Many endowments, pension plans and insurance firms are forbidden from holding crypto in their investment portfolios, but ETFs change that. They can now add bitcoin to their alternatives pile and get around previous restrictions.
The end all be all is that bitcoin could become a viable asset class for many investors now that these landmark funds have launched.
The next step of the bitcoin race remains fees. In an effort to gather assets and quickly grow to scale, many of the issuers have now cut expenses to rock-bottom rates to attract investor interest. Here, again, investors are ultimately the ones that win out.
The Bottom Line
After what seems like years of delays, spot bitcoin ETFs are here. Thanks to changes to safety and the inclusion of trustworthy participants, the SEC has changed its tune. With that, 11 of the 14 bitcoin ETFs are now live. For investors, that’s wonderful news as the asset class has been democratized.
