WASHINGTON/NEW YORK — The US securities regulator on Wednesday (Jan 10) approved the first US-listed exchange traded funds (ETFs) to track bitcoin, its Chair Gary Gensler said, in a watershed for the world's largest cryptocurrency and the broader crypto industry.

The US Securities and Exchange Commission approved 11 applications, including from BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck, among others, according to a notice on its website. Some products are expected to begin trading as early as Thursday, kicking off a fierce competition for market share.

The products — a decade in the making — are a game-changer for bitcoin, offering institutional and retail investors exposure to the world's largest cryptocurrency without directly holding it, and a major boost for a crypto industry beset by a string of scandals.

Standard Chartered analysts this week said the ETFs could draw US$50 billion to US$100 billion (S$66.5 billion to S$133 billion) this year alone, potentially driving the price of bitcoin as high as US$100,000. Other analysts have said inflows will be closer to US$55 billion over five years.

"It's a huge positive for the institutionalization of bitcoin as an asset class," said Andrew Bond, managing director and senior fintech analyst at Rosenblatt Securities. "The ETF approval will further legitimize bitcoin."

Bitcoin was last up three per cent at US$47,300. The cryptocurrency has soared more than 70 per cent in recent months on anticipation of an ETF, and hit its highest level since March 2022 earlier in the week.

Success in what is expected to be a heated battle to acquire assets for spot bitcoin ETFs will likely centre around fees and liquidity, analysts say.

Some issuers undercut their own fees in new filings this week, including BlackRock and Ark/21Shares, emphasizing the urgency with which they are looking to grab a share of the expected capital inflow. Those fees range from 0.2 per cent to 1.5 per cent, with many firms offering to waive fees entirely for a certain period of time.

For short-term speculators, though, liquidity could be more important than fees. The more liquid an ETF, the easier for investors to quickly buy and redeem shares at prices that closely track the actual price of bitcoin.

Companies also expect a flurry of online advertising and other forms of marketing. Some issuers, including Bitwise and VanEck, have already released advertisements touting bitcoin.

"It is pretty unprecedented, so we'll see how it works. I've never been in a situation where 10 of the same ETF was launched on the same day, so this is a new one," said Steven McClurg, the chief investment officer at Valkyrie, whose ETF was among those approved on Wednesday.

A 'milestone'

A green light marks a U-turn for the SEC, which for a decade rejected bitcoin ETFs due to worries they could be easily manipulated. SEC chair Gensler is also a fierce crypto skeptic.

Bitcoin ETFs could pave the way for other innovative crypto products, said Jim Angel, an associate professor at Georgetown's McDonough School of Business. Several issuers, for example, have already filed for spot ether ETFs to track the price of the second-largest cryptocurrency.

"Once the dam has been breached, it's going to be really hard for the SEC to continue its 'just say no to crypto' approach," said Angel.

Hopes the SEC would finally approve bitcoin ETFs surged last year after a federal appeals court ruled that the agency was wrong to reject an application from Grayscale Investments to convert its existing Grayscale Bitcoin Trust (GBTC) into an ETF. That ruling forced the agency to re-examine its position.

In a statement, Gensler said that in light of the court ruling, approving the products was "the most sustainable path forward," but added the agency did not endorse bitcoin, which is risky and volatile.

The crypto industry celebrated the news.

"Like many of Grayscale's future-forward investors, we believed that bitcoin could change the world, and we were and remain excited at the prospect of democratizing access to this asset through a US regulated investment vehicle," said Grayscale CEO Michael Sonnenshein.

Douglas Yones, head of exchange traded products at the New York Stock Exchange, where some products will be listed, said the approval was also an important "milestone" for the ETF industry.

Cynthia Lo Bessette, head of digital asset management at Fidelity, said the new products should provide "increased choice for investors who want to engage with" crypto.

The approvals come a day after an unauthorized person published a fake post on the SEC's account on social media platform X, saying the agency had approved the new products for trading. The agency quickly disavowed and deleted the post.

On Wednesday it said it is coordinating with law enforcement including the Federal Bureau of Investigation and the SEC's own internal watchdog to investigate the incident.

Further confusion ensued on Wednesday afternoon when the SEC posted a notice on its website appearing to show that the ETFs had been approved but then removed it, only to repost it again.

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Source: Reuters