Spot Bitcoin ETF Wins Approval Amid SEC Tech Glitches

The Securities and Exchange Commission said it will permit the creation and trading of spot bitcoin exchange-traded funds, a watershed decision that's expected to lead to billions of dollars entering the new funds and exposing a fresh batch of investors to the ups-and-downs of crypto investing.

The order went public before 4 p.m. today, and the SEC document disappeared from the agency's website shortly after, a reminder of the tech glitches that led to a false tweet yesterday that incorrectly announced the spot bitcoin ETF approval. 

Hashdex, one of the 11 firms whose ETF was approved, confirmed to etf.com that they were informed of the approval.

The SEC filing said the regulatory body approved all 11 issuers. Funds from firms including Grayscale Bitcoin Investment, BlackRock Inc., Fidelity Investments, Invesco Ltd., and Ark/21Shares may begin trading as soon as Thursday. 

"After careful review, the Commission finds that the Proposals are consistent with the Exchange Act and rules and regulations thereunder applicable to a national securities exchange," the SEC wrote.

Investors and crypto aficionados hailed the SEC's decision, which comes more that 10 years after Cameron and Tyler Winkelvoss first applied to create the funds in 2013. The SEC has denied multiple applications over the years, ruling the funds didn't sufficiently protect against fraud, and as crypto services firms, including Sam Bankman-Fried's giant FTX trading platform, imploded. Applicants in 2023 began adding security measures that appear to have eased the regulator's concerns.

"Spot ETF approval today is a true milestone moment for the crypto asset class," said Sui Chung, CEO of CF Benchmarks, which operates the underlying incides for seven issuers, including BlackRock. "A spot ETF has always been important because it stands to open bitcoin up to a much broader swathe of investors."

Spot Bitcoin ETF Approved

The approved funds also include the Bitwise Bitcoin ETF, Hashdex Bitcoin ETF, Valkyrie Bitcoin Fund, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust and the WisdomTree Bitcoin Fund.

Bitcoin fell less than 1% late this afternoon. It's more than doubled over the past year.

ETFs that track cryptocurrency futures began trading in 2021 with the launch of the ProShares Bitcoin Strategy ETF (BITO). That fund has more than doubled this past year. Still, the SEC held fast against approving a spot bitcoin ETF. 

Then in August, the agency lost a key court decision against Grayscale Investments, which had sued the SEC over its decision to forbid the firm from converting its Grayscale Bitcoin Investment Trust into a spot bitcoin ETF. Many observers saw that as pivotal in clearing the path toward approval.

Potential issuers have been locked in a fee war recently. The funds' fees range from Bitwise's 0.20% to Grayscale's 1.5%. A number of firms, including BlackRock, Invesco, and Bitwise are waiving their fees for the first months of trading. 

"There's really no benefit from going with a higher fee issuer because at the end of the day, you're just getting Bitcoin exposure," said Morningstar ETF analyst Bryan Armour. "There could be some small differences between different issuers we're gonna have to see how that plays out."

Valkyrie's Steven McClurg said he expects about $2 to $4 billion in inflows to the ETFs this week in their first trading days. Yet he and other issuers emphasize that they are also taking a long- term view as they work to convince institutional investors and financial advisors to buy into bitcoin. 

"It took a lot longer than many had hoped, but U.S. investors have finally gotten the holy grail of bitcoin ETFs," etf.com Senior Analyst Sumit Roy said. "It’s an incredible achievement for an industry that put ten years of hard work into this."

As the competition for market share ratchets up, some issuers are focusing on winning over financial advisors, while others are focusing on institutional investors. "I think the biggest barrier to the entry is that there are ten others," said McClurg. 

"There will be adoption by advisors, by institutions, so those relationships are going to be really important," Armour said. "If they can gather assets, it's this self-fulfilling prophecy where if you're the one that gathers the most assets, then you're going to get the most attention from market makers and traders, which then feeds into the broader crypto community."