The US Securities and Exchange Commission (SEC) has approved the listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares.
It comes after the US regulator disapproved more than 20 exchange rule filings for similar products between 2018 and March 2023, including one made by Grayscale seeking to convert its Grayscale Bitcoin Trust into an ETP.
The US Court of Appeals for the district of Columbia held that the SEC failed to adequately explain its reasoning in disapproving the listing of Grayscale’s proposed ETP (the Grayscale Order). Therefore, the court cancelled the Grayscale order and remanded the matter to the SEC.
Last night, SEC chair Gary Gensler explained that circumstances have changed and that he feels the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares.
He added: “Importantly, today’s Commission action is cabined to ETPs holding one non-security commodity, Bitcoin. It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.
“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.”
The Commission is separately completing the review of registration statements for 10 other spot bitcoin ETPs to help to create a level playing field for issuers and promote fairness and competition.
Commenting on the SEC’s decision, Bob Jenkins, global head of research at LSEG Lipper, said: “The reality is that investors seem intent on incorporating crypto into their portfolios, regardless of access to ETF products.
“Today’s approval for spot products may therefore represent an enhanced level of organised oversight and transparency to this asset class, so will likely benefit investors.”
Gensler stressed, however, that this decision does not approve or endorse crypto trading platforms or intermediaries, explaining that most are non-compliant with the federal securities laws and often have conflicts of interest.
He also highlighted that the SEC does not approve or endorse Bitcoin either and called investors to remain cautious about the “myriad risks” associated with bitcoin and products whose value is tied to crypto.
For Neil Wilson, chief market analyst at Finalto, the key question now is whether big names in the asset management industry will get involved.
He said: “BlackRock, Invesco, Fidelity and other smaller outfits like VanEck, Franklin and Valkyrie can launch their products today.
“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’. It could see Bitcoin surge in the long run, but so far the reaction has been muted.”
Laith Khalaf, head of investment analysis at AJ Bell, added that the latest announcement is a “giant step for crypto into the mainstream” and could be “the beginning of it creeping into the tent of more traditional asset classes”.
However, he noted that it is not a “slam dunk” that they will gain approval in the UK as US ETPs do not issue a key investor document – a requirement in the UK and Europe – so fund groups would need to launch new funds in these regions.
The Financial Conduct Authority has been “walking a bit of a tightrope” with cryptocurrencies between keeping consumers safe and the government’s ambition to make the UK a global hub for cryptoasset technologies.
“Bitcoin has endured a number of scandals and huge price volatility, but large investment groups are clearly still interested in packaging it into a tradeable product for punters. This is presumably because there would be large consumer demand for Bitcoin ETFs, but sometimes you should be careful what you wish for,” Khalaf said.
“It’s hard to make a case that crypto fulfils a genuine financial planning need that can’t be met by other assets, but it definitely does open up investors to the possibility of very heavy losses.”