It’s a decision that could shake up the sector. The American financial markets watchdog, the SEC, gave the green light on Wednesday January 10 to the listing of a new investment product in bitcoins, a major step for the adoption of cryptocurrencies.
The product authorized on Wednesday is an ETF (Exchange traded fund), an index fund that allows investors to benefit from developments in bitcoin without directly placing their money in the digital currency.
Concretely, they buy shares of the fund, which they can resell at any time, and not bitcoin, the value of their assets remaining expressed in dollars. The fund’s assets are placed in cryptocurrencies.
ETFs are attractive for their simplicity
Launched in the early 1990s, ETFs took off in the early 2000s, attracting with their simplicity, which offers the possibility of tracking the performance of gold, oil, a stock index or an industrial sector. According to a report from Oliver Wyman, some $6.7 trillion was housed in ETFs at the end of 2022.
On Wednesday, the SEC gave authorization to 11 different companies to launch their own products, including major Wall Street houses like Fidelity and BlackRock, according to the document published on the regulator’s website. The news caused bitcoin to rise but in measured proportions, the star cryptocurrency having already climbed significantly in recent weeks.
Around 10:50 p.m. GMT, it gained 1.37%, to $46,576. The market had already reached a milestone, in October 2021, with the listing of the first ETF invested not directly in bitcoins but in futures contracts linked to the cryptocurrency.
Until now, access to digital currencies required opening an account on a cryptocurrency exchange platform and converting a traditional currency (issued by a central bank), such as the dollar.
“A turning point”
The market has been speculating for several weeks on the approval of this new ETF, clearly accentuating the volatility of bitcoin, already known for its brutal variations. On Tuesday, the queen digital currency briefly soared to its highest level in 22 months, at $47.914 per unit, after the publication of what turned out to be a false post on X (formerly Twitter) of the SEC, announcing the approval of the bitcoin ETF.
The SEC then indicated that his account had been hacked, the time it took to post the message. The stock market policeman had already rejected, on numerous occasions, marketing requests for similar products in the past, but a recent development has changed the situation.
At the end of October, a federal appeals court in Washington confirmed that the SEC was not justified in refusing the approval of its bitcoin ETF to asset manager Grayscale. Given this case law, “I believe the most tenable decision is to approve the listing” of these ETFs, said SEC Chairman Gary Gensler in a statement.
Skeptical big bosses
The arrival of an ETF is “a turning point for digital assets and signals a move towards mainstream adoption and (their) legitimacy,” commented Thomas Tang, vice president at private equity firm Ryze Labs. “By their mere existence within a regulated framework, bitcoin ETFs will give institutional credibility to digital assets,” he added.
Many leading financiers and big bosses have publicly expressed their skepticism, even their opposition to these digital currencies in recent years. “The only real use” of cryptocurrencies is that they benefit “criminals, drug traffickers”, for “laundering, tax evasion”, declared, in early December, the CEO of the largest bank of the world, JPMorgan Chase, Jamie Dimon. “If I were the government, I would put an end to it.”
On Wednesday, Gary Gensler contrasted metal-backed ETFs, “which have consumers and are used in industry”, to these new bitcoin products, which “is above all a speculative and volatile asset, which is also used for activities illicit”.