bitcoin etfs: ETtech Explainer: US SEC’s nod to bitcoin ETFs, and what it means for the crypto ecosystem

After a prolonged tug-of-war between asset managers and the US Securities and Exchange Commission (SEC), the regulator green-lit the first-ever US-listed exchange-traded funds (ETFs) that track the price of the world’s most popular cryptocurrency: bitcoin. The SEC has granted approval to 11 applications from major entities such as BlackRock, Fidelity, Invesco, and ARK Investments.

What is an ETF, and why is there a lot of buzz around this?

An ETF, or exchange-traded fund, is a type of investment fund or product that trades on stock exchanges similar to shares. These funds – that are typically buckets of an asset or assets divided into shares – are designed to mirror the performance of a specific index, sector, or asset class.

Bitcoin ETFs, in particular, track a bitcoin benchmark. Investors can utilise bitcoin ETFs as a means to gain exposure to the cryptocurrency without the need to directly hold bitcoin or manage a cryptocurrency wallet.

How does it work?
The mechanics of bitcoin ETFs involve listing bitcoin on exchanges like Nasdaq, New York Stock Exchange (NYSE), and Chicago Board Options Exchange (CBOE). The assets of these ETFs consist of bitcoin acquired from crypto exchanges and held by custodians such as Coinbase Global.

What does this mean for the broader ecosystem?

While so far, alternative asset managers, individuals and high net worth investors have been backing cryptocurrencies, bitcoin ETFs allow mainstream financial institutions with assets under management worth trillions of dollars to access the cryptocurrency asset class.

Rajagopal Menon, vice president of crypto trading platform WazirX, told ET in an interaction, “All those financial institutions were sitting on the sidelines because they were worried about the regulatory aspect of it. Now, as the SEC has given its blessings, and it is being issued by players like BlackRock and Fidelity, the acceptability (of bitcoin ETFs) will increase and a lot more institutions, corporations, and high net worth individuals (HNIs) will get into this”.

The price of bitcoin has surged about 70% since October 2023, in anticipation of a positive response from the security agency for the approval of bitcoin ETFs. The price of ethereum has also witnessed an increase in the meantime by almost 60%.

Last year, the crypto industry faced many challenges, including bankruptcies and scandals involving major players like FTX and Binance, leaving investors and financial sector regulators in the space wary.

Is there still room for scepticism?
SEC chairman Gary Gensler, who is a vocal critic of the volatility seen in cryptocurrency prices, clarified in an official statement that while they approved certain spot bitcoin ETP shares, it does not constitute an endorsement of bitcoin. He urged investors to remain cautious due to the myriad risks associated with bitcoin and crypto-related products.

What’s next?
Sumit Gupta, cofounder and CEO of Bengaluru-based cryptocurrency exchange CoinDCX told ET that this development is not just confined to bitcoin alone, but ethereum ETFs are also expected to follow suit and gain approval.

Gupta emphasised that the entire decentralised finance landscape, along with the operations of stable coins like USDT running on the ethereum network, is poised for a substantial increase and this expansion will accelerate the adoption of smart contracts and the creation of decentralised applications within the ethereum ecosystem.

He added that the impact of bitcoin ETFs will be very significant in the long term as it takes the crypto industry to a whole different level of legitimacy in regulations. It also provides clarity and confidence to investors, both retail and institutional.

Where does India stand on crypto regulation?
While the Indian government has taken a stance against use of crypto assets as currency, regulating these virtual digital assets has been a matter of global coordination. In October last year, G20 nations, under India’s presidency, endorsed a framework recommended by the International Monetary Fund and the Financial Stability Board. This framework has proposed licensing and supervision of crypto service providers, in an attempt to increase the oversight on the sector.

Stay on top of technology and startup news that matters. Subscribe to our daily newsletter for the latest and must-read tech news, delivered straight to your inbox.

After a prolonged tug-of-war between asset managers and the US Securities and Exchange Commission (SEC), the regulator green-lit the first-ever US-listed exchange-traded funds (ETFs) that track the price of the world’s most popular cryptocurrency: bitcoin. The SEC has granted approval to 11 applications from major entities such as BlackRock, Fidelity, Invesco, and ARK Investments.

What is an ETF, and why is there a lot of buzz around this?

An ETF, or exchange-traded fund, is a type of investment fund or product that trades on stock exchanges similar to shares. These funds – that are typically buckets of an asset or assets divided into shares – are designed to mirror the performance of a specific index, sector, or asset class.

Bitcoin ETFs, in particular, track a bitcoin benchmark. Investors can utilise bitcoin ETFs as a means to gain exposure to the cryptocurrency without the need to directly hold bitcoin or manage a cryptocurrency wallet.

How does it work?
The mechanics of bitcoin ETFs involve listing bitcoin on exchanges like Nasdaq, New York Stock Exchange (NYSE), and Chicago Board Options Exchange (CBOE). The assets of these ETFs consist of bitcoin acquired from crypto exchanges and held by custodians such as Coinbase Global.

What does this mean for the broader ecosystem?

While so far, alternative asset managers, individuals and high net worth investors have been backing cryptocurrencies, bitcoin ETFs allow mainstream financial institutions with assets under management worth trillions of dollars to access the cryptocurrency asset class.

Rajagopal Menon, vice president of crypto trading platform WazirX, told ET in an interaction, “All those financial institutions were sitting on the sidelines because they were worried about the regulatory aspect of it. Now, as the SEC has given its blessings, and it is being issued by players like BlackRock and Fidelity, the acceptability (of bitcoin ETFs) will increase and a lot more institutions, corporations, and high net worth individuals (HNIs) will get into this”.

The price of bitcoin has surged about 70% since October 2023, in anticipation of a positive response from the security agency for the approval of bitcoin ETFs. The price of ethereum has also witnessed an increase in the meantime by almost 60%.

Last year, the crypto industry faced many challenges, including bankruptcies and scandals involving major players like FTX and Binance, leaving investors and financial sector regulators in the space wary.

Is there still room for scepticism?
SEC chairman Gary Gensler, who is a vocal critic of the volatility seen in cryptocurrency prices, clarified in an official statement that while they approved certain spot bitcoin ETP shares, it does not constitute an endorsement of bitcoin. He urged investors to remain cautious due to the myriad risks associated with bitcoin and crypto-related products.

What’s next?
Sumit Gupta, cofounder and CEO of Bengaluru-based cryptocurrency exchange CoinDCX told ET that this development is not just confined to bitcoin alone, but ethereum ETFs are also expected to follow suit and gain approval.

Gupta emphasised that the entire decentralised finance landscape, along with the operations of stable coins like USDT running on the ethereum network, is poised for a substantial increase and this expansion will accelerate the adoption of smart contracts and the creation of decentralised applications within the ethereum ecosystem.

He added that the impact of bitcoin ETFs will be very significant in the long term as it takes the crypto industry to a whole different level of legitimacy in regulations. It also provides clarity and confidence to investors, both retail and institutional.

Where does India stand on crypto regulation?
While the Indian government has taken a stance against use of crypto assets as currency, regulating these virtual digital assets has been a matter of global coordination. In October last year, G20 nations, under India’s presidency, endorsed a framework recommended by the International Monetary Fund and the Financial Stability Board. This framework has proposed licensing and supervision of crypto service providers, in an attempt to increase the oversight on the sector.

Stay on top of technology and startup news that matters. Subscribe to our daily newsletter for the latest and must-read tech news, delivered straight to your inbox.