Semafor Signals
SEC opens Bitcoin to more investors
Insights from Blockworks, Forbes, and Semafor
The News
The Securities and Exchange Commission on Wednesday approved new investment products holding bitcoin, opening up the digital asset to more investors in a major update that revolutionizes the future of the industry.
Eleven spot exchange-traded funds (ETFs) were given the green light, giving more mainstream entities such as institutional and retail investors exposure to bitcoin without having to directly own the cryptocurrency.
The SEC stressed its reluctance to authorize the new products in a press release, but said that federal court rulings last year required it to reassess its position.
“I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares,” said SEC Chair Gary Gensler, referring to exchange-traded products, of which ETFs are one type.
The new approvals came after a hiccup on Tuesday when the SEC X account was hacked, with a fake post claiming the agency had approved all the products, causing bitcoin’s price to temporarily surge and then tumble.
The crypto industry has been eagerly waiting for the announcement, arguing that the new ETFs will assist in stabilizing bitcoin’s price and counterbalance the few “whales'’ who own a large amount of the currency, along with helping to legitimize the asset as an investment.
SIGNALS
Big competition unleashes fee war
Massive anticipation for spot ETFs has issuers sparring to attract customers, and fees have been cut as a result. BlackRock had initially proposed a 0.30% fee for its iShares Bitcoin Trust ETFs, but has since lowered the fee to 0.20% for the first 12 months. Crypto native fund manager Bitwise has meanwhile slashed all fees. But some investors are more interested in the liquidity of the ETFs — meaning “tighter bid/ask spreads and capacity for large trades without much price impact” — than fees, one crypto watcher told crypto news site Blockworks.
Spot ETFs contrast with bitcoin founder’s vision of decentralization
Bitcoin’s founder or founders, Satoshi Nakamoto (a pseudonym as no one actually knows who founded Bitcoin), created the cryptocurrency as a peer-to-peer financial system with no intermediaries, but spot ETFs put that vision at “risk of dilution” as “institutional investors seek the security of regulated custodians,” wrote crypto journalist Susie Violet Ward for Forbes. Experts are sounding warnings over the “institutional adoption” of bitcoin: As investment giants like BlackRock get more access to the coin through ETFs, there is a risk of “[killing] bitcoin” because these groups end up holding a lot of “immovable bitcoin” that ETF owners don’t actually have access to. This ultimately challenges one of the key advantages of bitcoin compared to other assets: the “ability to exercise sovereignty over one’s wealth,” argued Ward.
The hack stresses SEC’s warning about bitcoin’s vulnerability
The ETF approval is an “embarrassing end” for the SEC, which has actively resisted their creation, according to Semafor’s Business & Finance Editor, Liz Hoffman. The agency had argued that bitcoin is too vulnerable to market manipulation to support an ETF, but a federal court last year ruled that the agency’s rejection of a bitcoin ETF was “arbitrary and capricious” — which Hoffman said is a “ real judicial burn when it comes to federal rulemaking.” But investors saw the SEC’s warning play out in “real time on X” when the price surged and then quickly dropped following the hack, underscoring the coin’s susceptibility. “So there’s little technical justification for the agency’s change of heart,” Hoffman said. “Instead, it looks like capitulation.”
