Key Points:
- The US Securities and Exchange Commission (SEC) has granted approval for the first US-listed exchange-traded funds (ETFs) tracking Bitcoin.
- Nasdaq, NYSE, and the CBOE will now list these ETFs following the regulatory clearance.
- Bitcoin’s value surged by over 70% in anticipation of the SEC approval.
- Asset management companies are reducing fees to attract investors.
- GIFT City in India could be a strategic starting point for trading these ETFs.
In a pivotal moment, the SEC has given the green light to 11 ETF applications, including those from major players like BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck. Despite some officials’ warnings about associated risks, the move signals the legalization of cryptocurrencies as a new asset class.
Even before the SEC’s approval, Bitcoin’s market capitalization exceeded $913 billion, showcasing the significant influence of this digital currency globally. The total net assets of U.S. ETFs, reported at $6.5 trillion in December 2022 by the Investment Company Institute, further emphasize the substantial impact these ETFs are expected to have.
While Bitcoin itself is not a legal asset, the approval of Bitcoin ETFs means retail and institutional investors can now legally engage with cryptocurrencies without concerns about regulatory scrutiny. The move is expected to redirect funds, including those from Indian investors, into these assets.
Analysts predict substantial inflows, with Standard Chartered suggesting that ETFs could attract $50 billion to $100 billion in the current year alone. To sweeten the deal, asset management companies are reducing fees, and some are even considering temporary fee waivers.
However, not everyone is on board. Dennis Kelleher, CEO of Better Markets, cautions against the potential vulnerability to crypto fraudsters and calls the approval a “historic mistake.”
The confusion around the legal status of Bitcoin persists, as SEC Chair Gary Gensler clarified that while certain Bitcoin ETP shares are approved, it does not constitute an endorsement of Bitcoin itself.
The impact of this approval is expected to affect gold ETFs, as Bitcoin was initially marketed as digital gold. Yet, Bitcoin’s higher volatility (3.6 times more than gold) introduces additional risks.
The approval opens the door for ETFs to be listed on major exchanges such as Nasdaq, NYSE, and the CBOE. These ETFs will hold physical Bitcoin obtained from crypto exchanges and stored through custodians like Coinbase Global. The ETFs will track a Bitcoin benchmark, relying on data from various Bitcoin-USD markets operated by cryptocurrency exchanges.
As the world becomes increasingly digital, governments like India may need to reconsider their stance on cryptocurrencies. Rather than losing funds to other markets, participating in and regulating these instruments, potentially through GIFT City, could be a more prudent approach. Legalization, monitoring, and taxation could address government concerns while allowing them to tap into the growing wealth associated with the cryptocurrency landscape. The message is clear: Bitcoin, in some form, has gained legal acceptance, and governments may benefit more by embracing rather than opposing this evolving asset class.
