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Six companies, including BlackRock, have submitted proposals to the US Securities and Exchange Commission (SEC) to launch spot bitcoin exchange-traded funds.
While there were murmurs of another sell-the-news crash possible for cryptos amid Bitcoin ETF hype, supporters argue that introducing a US spot ETF will attract a swarm of new investors and generate more than US$50 billion in demand.
"Since mid-June, Bitcoin has gained 20% thanks to renewed confidence that the SEC would approve after over a decade of rejections. This optimism was sparked by a new batch of applications headed by asset management giant BlackRock," said an investment strategist at a large asset management firm in Boston.
"We are past the first hurdle, with the SEC accepting to look into the Bitcoin ETF applications and could even push the US regulator to approve because a few big names are attached," added the investment strategist.
While the SEC has already turned down hundreds of proposals for spot bitcoin ETFs because they did not provide enough protections against fraud and for investors, on Tuesday and Wednesday, the regulator published in the Federal Register proposals from Bitwise, VanEck, WisdomTree, Fidelity, and Invesco for identical spot bitcoin ETFs.
What probably helped is that earlier in the month, Nasdaq - where BlackRock sought to launch its ETF - said it would address SEC's concerns by collaborating with Coinbase, the biggest US crypto exchange, to monitor trade in the underlying bitcoin market.
CBOE Global Markets suggested a similar arrangement in related papers.
The fact that Bitcoin futures tracking exchange-traded funds currently exist is the strongest case for allowing further such products.
After the first bitcoin futures ETF was authorised in October 2021, the volatile cryptocurrency soared to a record high of US$69,000 in November that year.
Ashrith Rao
Around US$1 billion in first trading volume was seen in the ProShares Bitcoin Strategy ETF (ticker BITO). Shortly after that, Bitcoin reached an all-time high.
Futures-based ETFs monitor the price of Bitcoin futures contracts, whereas spot ETFs track the cryptocurrency's price.
Many wondered if the SEC would even consider accepting Bitcoin ETF applications in the current scenario, where the regulator has gone all out to weigh in on the crypto industry.
SEC vs. Crypto
"The SEC's first step to accept Bitcoin ETF applications seems like another win for cryptos after a court ruling in favour of Ripple Labs versus the regulator last week," said the alternative investment head at a large asset management firm in New York.
"Several parts of the crypto market experienced frantic activity after regulatory uncertainty in the US digital asset industry. And that comes down to the verdict which dealt a blow to the SEC's position that the vast majority of tokens are securities subject to its regulatory oversight," added the
alternative investment head.
Last week, investors celebrated a significant verdict on one token as a success for the sector, sending firms' stock prices with exposure to cryptocurrencies soaring.
Even though it ended the week down 1.6% on Friday, Coinbase Global gained 34% for the week to mark its best weekly performance since the middle of March.
The weekly performance of other crypto-related stocks was similarly good.
Last week was the best for Robinhood Markets and Bakkt Holdings in over a year, with 15% and 30% gains, respectively.
Even if several Bitcoin mining stocks went down on Friday, the week was still positive for businesses, including Marathon Digital Holdings, Hut 8 Mining, Riot Platforms, and Cypher Mining.
Positive news around ETF applications boosted investor confidence and Bitcoin earlier last week.
"Those who support cryptocurrencies think that if they were legalised, it would signal Bitcoin's mainstream acceptance and encourage more people to invest in it," said a fund manager at a US asset management firm in Boston.
"There are several hypotheses as to why a spot fund may become more popular than futures funds. Financial advisors would have simpler access, the product may be cheaper than futures ETFs, and it wouldn't have the fees or contract restrictions built into the futures product," added the fund manager.
Even BlackRock CEO and former cryptocurrency sceptic Larry Fink has lately joined the ranks of those who view Bitcoin as a diversification agent.
In an interview with CNBC, Fink said, "We believe we have a responsibility to democratise investing. We've done a great job, and the role of ETFs in the world is transforming investing. And we're only at the beginning of that."
"It has a differentiating value versus other asset classes, but more importantly, because it's so international, it's going to transcend any one currency," added Fink.
Ashrith Rao
