Following the reported hacking of its X account, the Securities and Exchange Commission (SEC) announced on Thursday the approval for the listing and trading of several spot bitcoin exchange-traded product (ETP) shares.
This move is especially noteworthy considering the SEC’s historical trend of consistently denying approval for bitcoin ETF requests over the past decade, often citing concerns about market manipulation and investor protection.
In a statement explaining the rationale behind the SEC’s approval on Thursday, chair Gary Gensler said: “I have often said that the commission acts within the law and how the courts interpret the law.
“Beginning under chair Jay Clayton in 2018 and through March 2023, the commission disapproved more than 20 exchange rule filings for spot bitcoin ETPs. One of those filings, made by Grayscale, contemplated the conversion of the Grayscale Bitcoin Trust into an ETP.
“We are now faced with a new set of filings similar to those we have disapproved in the past. Circumstances, however, have changed.
“The US Court of Appeals for the District of Columbia held that the commission failed to adequately explain its reasoning in disapproving the listing and trading of Grayscale’s proposed ETP (the Grayscale Order). The court therefore vacated the Grayscale Order and remanded the matter to the commission. Based on these circumstances and those discussed more fully in the approval order, I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares.”
Mr Gensler, however, clarified that the approval does not signify a broader acceptance of cryptocurrencies by the regulator.
“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”
Grayscale, VanEck, and Fidelity are among the 11 funds authorised to issue securities tethered to the movements of the cryptocurrency.
A watershed day for bitcoin
The SEC’s decision received global applause on Thursday.
In a statement provided to InvestorDaily, Justin Arzadon, head of digital assets at Betashares, hailed it as a “watershed day for the maturity of bitcoin”, emphasising the potential confidence boost for the digital asset ecosystem and the prospect of deeper involvement by Wall Street in cryptocurrencies.
“While regulators in many countries have approved spot bitcoin ETFs, including Australia, none are bigger than the US. The SEC’s approval of spot bitcoin ETFs should add further confidence to the digital asset ecosystem and could pave the way for Wall Street to move deeper into cryptocurrencies as an asset class,” said Mr Arzadon.
He anticipates significant initial flows into US-traded spot bitcoin ETFs as a result of the approval, and sees this as an endorsement of the global investor preference for ETFs.
Moreover, Mr Arzadon highlighted that despite traditional finance expressing interest in digital assets, mixed adoption, influenced by ongoing market volatility, is expected to find increased confidence and legitimacy with the SEC’s recent decision.
However, Mr Arzadon advises caution, reminding investors that digital assets remain highly volatile and should only constitute a small portion of an overall portfolio.
“Investors should generally look to build a diversified portfolio core around Australian and international equities as well as bonds,” he said.
“Depending on their circumstances, investors might then consider including a small allocation to digital assets within the alternatives component of their portfolio.”
Chief executive officer and co-founder of eToro Yoni Assia echoed the sentiment and agreed that the SEC’s announcement is a “watershed moment”.
“For 15 years, bitcoin has been growing in prominence as an asset class amongst retail investors, while in a reversal of traditional roles, institutional investors have remained largely on the sidelines waiting for traditional finance rails to be put in place,” said Mr Assia.
“Today’s news provides an answer for institutional demand for bitcoin. It’s good news for crypto markets and supportive of our belief that bitcoin is an unstoppable technology. It is digital gold and taking a long-term view, I believe that it represents the intersection of finance, economics and technology.”
Jonathon Miller, managing director of Kraken Australia, also celebrated the moment as a milestone for both bitcoin and cryptocurrencies more generally.
“An ETF makes bitcoin accessible to a much broader range of investors and signifies tacit acknowledgement that the crypto asset class is here to stay.”
In the Asia-Pacific region, Global X was the first provider to launch spot bitcoin and Ethereum ETFs. The Global X 21Shares Bitcoin ETF (Cboe: EBTC) and Global X 21Shares Ethereum ETF (Cboe: EETH) remain the only spot cryptocurrency ETFs in Australia.
Commenting on this latest developments, Evan Metcalf, chief executive of Global X ETFs in Australia, said: “It is encouraging to witness a growing recognition of digital assets as a legitimate investment class, and we anticipate heightened demand for this type of exposure from investors, particularly here in Australia. The notable rallies of bitcoin and Ethereum this year further underscores this growth potential.”
SEC’s X blunder
However, the euphoria surrounding the SEC’s decision was nearly marred by a hacking incident on the social media platform X a day earlier where a compromised SEC account hinted at the ETF approval, triggering a surge in bitcoin prices.
Initially seen as an endorsement of spot bitcoin ETFs, a post on X was later described by Mr Gensler as a consequence of the SEC’s account being compromised.
“The @SECGov Twitter account was compromised, and an unauthorized tweet was posted. The SEC has not approved the listing and trading of spot bitcoin exchange-traded products,” Mr Gensler wrote.
Moments later, the SEC issued an official statement reading: “The SEC’s @SECGovX/Twitter account has been compromised. The unauthorized tweet regarding #bitcoin ETFs was not made by the SEC or its staff.”
The SEC is now under scrutiny, facing calls to investigate itself for potential market manipulation.
CoinDesk estimated at the time that SEC’s mix-up wiped out over $50 million of leveraged derivatives trading positions within an hour.
