A ‘bitcoin ETF’ on the US market could herald a new era for crypto

Bitcoin adepts meticulously follow every step of the American stock exchange regulator SEC. Is he meeting with representatives of one of the asset managers? Are the minutes leaking? Have additional requirements been set or are they satisfied?

One of these days the SEC is expected to rule on a series of applications from asset managers to be allowed to offer a so-called bitcoin ETF.

An ETF is an investment product. In this case, you could speculate on the price of the cryptocurrency bitcoin, without having to buy and store bitcoin yourself. This is done by the asset manager who issues the ETF. Attractive for investors who find the step into the virtual world of crypto too complicated or risky.

The SEC has so far been extremely reluctant to allow cryptocurrency-based investment products on the US market. Crypto entrepreneurs have been trying to get approval since 2013. But since the world’s largest asset manager, BlackRock, submitted its application last June, expectations have risen within the crypto world that the regulator’s attitude will change.

Because if even BlackRock with its solid reputation dares to do something like this, then it must be promising, right? That thought alone drives up the price of bitcoin. The digital currency has approximately tripled in value in 2023, with a spurt upward from September when ETF speculation began.

Whether all the optimism is justified remains to be seen. Numerous products and services that are popular in the crypto world have already been banned from the American market and exchanges. For this reason, companies moved to other jurisdictions – such as Hong Kong, Dubai and the Bahamas – and faced legal proceedings if they subsequently had American customers. This happened regularly, because America is the largest crypto market worldwide, followed by Asia and Europe.

Because America has no crypto legislation, regulators and judges are de facto regulators. The jurisdiction shows what is and is not allowed and the decisions of supervisors are partly political. Gary Gensler, the head of the stock exchange watchdog SEC appointed by President Joe Biden, like many Democrats, regularly speaks negatively about crypto. Moreover, the tide is not with the digital coins. In the second half of 2022, prices of bitcoin, among others, fell dramatically and several large companies collapsed.

New phase for crypto

The best known was FTX by Sam Bankman-Fried. In America in particular, the judiciary opened investigations into crypto entrepreneurs last year and charged them. An example of this is the owner and founder of Binance, the largest crypto exchange in the world. He has settled his case and resigned, but has yet to hear his final sentence.

In that context, every meeting of SEC officials with representatives of BlackRock and other companies looking to launch a bitcoin ETF is under a magnifying glass. If permission is granted, it may herald a new phase for crypto. New money from American investors would then flow into the crypto world via the ETFs.

“These types of regulated products make it possible for more traditional investors and investors to invest in bitcoin, without having to use a cryptocurrency exchange to convert money into cryptocurrency or ‘touch’ crypto,” says Menno Martens. Martens is a crypto analyst at asset manager VanEck. VanEck has also applied for an ETF with the SEC.

Many investors have so far shied away from the step from the traditional financial world to that of virtual currencies, but they are eagerly watching the price fluctuations there. These offer opportunities for speculation. It would be beneficial if an ETF lowers the threshold for investing, Martens believes. “And the more people invest in crypto, the more capital is available to innovate crypto.”

A bitcoin ETF is not innovative. The concept is relatively simple. The asset manager buys and stores bitcoin (the largest and oldest cryptocurrency) and links it to an investment product that can be traded on the stock exchange, the value of which is expressed in traditional currency. Something that has been happening for years with, for example, gold or baskets of shares. Similar products already exist in Europe, although they are not called an Exchange Traded Fund, but, for example, an Exchange Traded Product.

Institutionalized crypto

The provider receives compensation for this service. During this period, the various applicants for bitcoin ETFs in the US (a dozen or so apart from BlackRock) announce what fees they charge and which parties they work with for the purchase and custody of the bitcoin. For example, BlackRock and most other ETF applicants place them in a kind of digital vault at Coinbase. That is the only crypto exchange in America with a stock exchange listing. This is a test of reliability, because a stock exchange listing entails numerous obligations in the field of transparency and accounting.

Also read
Bitcoin is (again) on the rise. Partly due to the continued interest from the traditional financial world

The proceedings before the SEC and thus the extensive involvement of the traditional and regulated financial world lead to mixed feelings among people who believe in bitcoin not only for financial but also for ideological reasons. Crypto was partly devised as an alternative to the traditional financial world and in response to the excesses within it, which led to the financial crisis of 2008. The technology would make banks and other financial institutions redundant.

But after a series of excesses at large companies within the crypto world – in which consumers lost their invested money – there is not much left of that challenging attitude. 2023 was all about the response of legislators and regulators to those abuses. The traditional world increasingly determines within which frameworks crypto experiments are permitted. And major players such as BlackRock are happy to benefit from this. Instead of a competitor, crypto is a product for them to earn money from.

That does not mean an end to the phenomenon. The EU adopted crypto legislation for the first time in 2023, which will come into effect at the end of this year. This gives consumers some protection and offers entrepreneurs legal certainty in a huge consumer market.

In recent years, the young crypto world has been described as ‘the wild west’, where boundaries were tested – and broken – until a sheriff had to intervene. It is now also said that the era of ‘institutionalized crypto’ has arrived. ‘ SEC approval of a Bitcoin ETF from BlackRock would illustrate that.

To share





Email the editor