Finally – the SEC approved a Bitcoin spot ETF. Amid all the false starts and fake tweets, the actual announcement was greeted with due buy-the-rumour sangfroid – at least initially. 

Indeed, SEC chair Gary Gensler was keen to stress that approving a spot Bitcoin ETF is not tantamount to the regulator wrapping its arms around the crypto space in a warm embrace. “It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities,” Gensler said in an accompanying statement. “Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws.”  

And he concluded with this: “While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin.” What’s interesting is not so much that he doesn’t endorse it, but that he took the pains to say so – he wouldn’t need to say this about any normal ETPs…it shows the rather difficult genesis of this product and the standards by which it is being judged. Indeed, the SEC “is merit neutral and does not take a view on particular companies, investments, or the assets underlying an ETP”.  

Fine. But it’s hard to avoid the sense that SEC approval of a Bitcoin spot ETF is tantamount to ‘approval’ of the asset on a more fundamental level. Hence the pains being taken to say otherwise. 

Quite how the SEC has come to view the spot Bitcoin market as safe enough I don’t know – the spot market is totally unregulated still. It seems that the SEC has bowed to a huge amount of industry pressure. And CME futures mean there is an existing, regulated venue to provide the level of surveillance etc to discover fraud, manipulation etc…this is up for debate of course, but the SEC seems to have bought the argument of ARK and others that there is enough correlation between spot bitcoin and futures to approve the spot ETF. But this raises a question about what the actual underlying market is – is it the spot, ie physical, market of Bitcoin on exchanges like Kraken etc, or is it really going to be the CME futures derivative that is in charge? The spot market is very immature and basically a hive of fraud, whales and manipulation, albeit very liquid. The futures is not like that…who wins? The implications will be important for Bitcoin as an asset as well as whether investors feel like it’s the kind of place they can do business. A key question is whether the big boys get involved – and by big boys we mean JPM, and Jamie Dimon has not been keen.  

So, BlackRock, Invesco, Fidelity and other smaller outfits like VanEck, Franklin and Valkyrie can launch their products. The barriers to entry into the market are a heck of a lot lower today than yesterday, which could unlock a huge amount of buyers and ‘cash on the side-lines’. The ProShares futures ETF pulled in $1bn in its first two days in 2021. 

Transaction costs will be lower than with futures, and already the providers are in a price war. Whilst spot Bitcoin ETFs have been available elsewhere, the US market is key expansion in terms of price and breadth – it opens the door to Wall Street. It could see Bitcoin surge in the long run, but so far the reaction has been muted.