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The US Securities and Exchange Commission (SEC) has finally met the crypto world’s decade-long expectation by approving exchange-traded funds (ETFs) that directly track and hold Bitcoin‘s performance in the day’s early minutes. Despite numerous rejections since 2013, the SEC had to backtrack on a decision by an appeals court in August 2023 that denied Grayscale Investments‘ application for a spot Bitcoin ETF. Consequently, the US regulator approved a total of 11 applications from giants such as ARK Investments, Fidelity, BlackRock, and others.
The Significance of the US’s First Spot Bitcoin ETF Approval
The importance of the SEC’s approval of a spot Bitcoin ETF for the crypto world extends far beyond its financial consequences. One of the most significant outcomes of the ETF approval is that it has brought Bitcoin closer to mainstream recognition while increasing the legitimacy of the entire crypto world. This development emerged against the backdrop of an ongoing struggle between the crypto world and the SEC, which has intensified regulatory scrutiny over the industry. In this particular regulatory battle, Bitcoin and the crypto world have emerged victorious.
Although spot Bitcoin ETFs are already accessible in Canada and Europe, the approval in the US carries exceptional significance. The US, being the world’s largest capital market, is home to some of the biggest asset management firms and institutional investors globally. The financial impact of the Spot Bitcoin ETF remains uncertain. The country’s first Bitcoin futures ETF, ProShares Bitcoin Strategy ETF (BITO.P), approved by the SEC in 2021, reached a volume of approximately $1 billion on its opening day. Experts believe that the spot Bitcoin ETF could exceed this volume threefold on its first day and potentially reach $55 billion within five years, according to some estimates.
Although Bitcoin has experienced a 70% increase since the court’s decision on Grayscale, predicting its future trajectory remains challenging. Analysts emphasize that factors such as interest rates will likely play a significant role in determining the extent of Bitcoin’s upward movement.
Bitcoin made a slight rise to $47,000 for a short time in response to the SEC’s approval. Investors are now observing market dynamics and eagerly awaiting fund inflows into these newly approved financial products.
How Will the Spot Bitcoin ETF Work?
Spot Bitcoin ETFs will be listed on major platforms such as Nasdaq, NYSE, and CBOE. These ETFs will be backed by physical Bitcoin, which is purchased from cryptocurrency exchanges and safeguarded through custodians like Coinbase Global.
The underlying assets of these ETFs will reflect a benchmark tied to Bitcoin. Some will follow an index managed by CF Benchmarks, a subsidiary of Kraken, which combines trading data from various Bitcoin-US dollar markets operated by leading cryptocurrency exchanges.
According to Reuters, in response to the SEC’s concerns about market manipulation, Nasdaq and CBOE have collaborated with Coinbase, the largest cryptocurrency exchange in the US, to establish a market surveillance mechanism. The issuers of these Bitcoin ETFs plan to charge fees ranging between 0.20% to 0.80%, significantly below the average fund management fees observed in the broader ETF market.
