The financial system and retail investing market landscape have undergone many changes throughout the years. Innovation continues to create new opportunities for institutional and retail investors in the progressing integration of technology and finance. Now, we may be seeing monumental changes to the asset class of cryptocurrencies, a security that has faced mixed sentiments since its inception.
The spot bitcoin exchange-traded fund (ETF) is an investment vehicle that allows ordinary investors exposure to the price moves of bitcoin in regular brokerage accounts. BlackRock, Fidelity and Bitwise are among the 11 money managers granted to release the product on their platform, according to CNBC.
These spot bitcoin ETFs provide cheaper access to investing in bitcoin by purchasing through the asset manager’s platforms versus purchasing them directly through a crypto exchange. Another benefit is that it eliminates the process of maintaining a cryptocurrency wallet and offline cryptocurrency storage to protect the investment.
On January 10, the Securities and Exchange Commission (SEC) approved the listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares. This decision came after countless filings were disapproved by the commission, due to the SEC’s belief that the products would be exposed to market manipulation. However, the US Court of Appeals for the District of Columbia stated that the SEC failed to adequately explain its reasoning for disapproving Grayscale’s application for its spot bitcoin ETF in June 2022. The argument in this case was that the proposal did not meet anti-fraud and investor protection standards.
Bitcoin was the first cryptocurrency. It was launched in 2009 by a group of computer programmers under the pseudonym Satoshi Nakamoto. By the end of 2011, the price had grown past $1, peaking at $29.6 by mid-year. Fast-forward a decade to January 2021, and the price had surpassed its subsequent record price, peaking at $63,558 later that April.
An increasing number of institutions, platforms and countries have accepted bitcoin as a form of currency. The adoption of bitcoin has benefited nations such as Ukraine and Iran. On the other hand, countries like China and Saudi Arabia have made it illegal to use Bitcoin because of the fear of its volatility, decentralized nature and threat to monetary systems.
In the release, SEC Chair Gary Gensler said, “If the issuer of a security and the listing exchange comply with the Securities Act, the Exchange Act and the Commission’s rules, that issuer must be provided the same access to our regulated markets as anyone else.” However, bitcoin has continued to receive pushback and warning from Gensler.
“Investors should be aware that the underlying asset is a highly speculative, volatile asset and amongst its use cases is really for illicit activity… Money laundering, sanctions, ransomware, and alike,” he said.
These issues can pose a major risk to the legitimacy of the markets and the safety of others.
An example can be found in the United States Department of Justice (DOJ)’s investigation of Iranian firms bypassing US sanctions by processing billions worth of transactions through the crypto exchange Binance.
Larry Fink, CEO of BlackRock, was originally not a supporter until a couple of years ago and is now a big believer in the movement. When asked about the long-term value proposition of Bitcoin, Fink supported that it would be an asset class that protects investors.
An asset like bitcoin has seen drastic price increases and decreases, but if volatility remains down over time and the value rises, investors will see it as a much more attractive asset to maintain.
“If people are fearful of geopolitical risk or their own risk, it is no different than what gold has represented for thousands of years,” Fink said. “What we are trying to do is offer an instrument that can store wealth.”
If the value of Bitcoin itself surges, investors buying into these newly released ETFs could come out as big winners moving forward. Ark Invest CEO & CIO Cathie Wood is confident that the asset will have a major price increase within the next few years.
“Our base case is in the $600,000 range and our bull case is $1.5 million dollars by 2030,” she said.
Copy edited by Jalyn Lovelady
