Bitcoin ETFs begin trading in end to decade-long tussle with SEC

:Several exchange-traded funds (ETFs) tied to the spot price of bitcoin began trading in the U.S. on Thursday in a landmark moment for the cryptocurrency industry that has been seeking regulatory approval for the financial product for over a decade.

The green light by the U.S. Securities and Exchange Commission finally came late on Wednesday following months-long talks with top asset managers such as BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck.

The regulator approved 11 such ETFs, paving the way for popularizing investments in the world's biggest crypotcurrency without the risk of holding the digital token directly.

"The approval has the potential to simplify and secure Bitcoin investments for a broader investor base, which may reshape the dynamics of cryptocurrency investments," said Rajeev Bamra, senior vice-president of digital finance at Moody's Investors Service.

BlackRock's iShares Bitcoin Trust, Grayscale Bitcoin Trust, Valkyrie Bitcoin Fund and ARK 21Shares Bitcoin ETF, among others, have begun trading.

RACE FOR MARKET SHARE

The regulatory nod is expected to start an intense competition for market share among the issuers who have already lowered the fees for the products well below the U.S. ETF industry's standard.

Analysts at Bernstein estimated that bitcoin ETF flows will build up gradually to cross $10 billion in 2024 in its race to $80 billion by the end of next year.

"Bitcoin ETFs are expected to be an intensely competitive asset accumulation game, with 11 leading asset managers launching together," the brokerage said in a note.

Since all the ETFs tracking an asset's price are designed to deliver the same return to investors, fees tend to dictate market share.

The issuers have disclosed fees as low as 0.20 per cent and some have offered to waive it off for a particular period or until it accumulates a set amount in assets.

Many ETFs issuers, including Bitwise and VanEck, have already begun marketing their products by releasing ads that tout bitcoin as an investment.

In the run up to the SEC decision, bitcoin, the world's biggest and best-known cryptocurrency, had surged more than 150 per cent in 2023. The market capitalization of bitcoin was more than $900 billion as of Jan. 10, according to CoinGecko.

"It (the approval) could lead to substantial inflows from institutions interested in entering the cryptocurrency market," Bamra of Moody's said.

The SEC had earlier rejected all spot bitcoin ETFs on investor protection concerns. Hopes of a change in its stance gained ground last year after a federal appeals court ruled that the agency was wrong to reject Grayscale's application to convert its existing Bitcoin Trust into a spot bitcoin ETF.

Still, some analysts said the euphoria around the approval might be premature.

"One must be cautious not to conflate price gains with broader predictions of cryptocurrency overtaking traditional finance," Deutsche Bank analysts said in a note, adding that volatility in bitcoin prices was likely to persist.

CRYPTO STOCKS GAIN

Bitcoin was trading at its highest level in more than two years on Thursday while cryptocurrency-related stocks climbed with bitcoin miners Riot Platforms and Marathon Digital rising 7 per cent and 5 per cent, respectively.

Bitcoin investor Microstrategy gained 7 per cent and crypto exchange Coinbase 4 per cent, while the ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, added 3.7 per cent.

Shares of retail trader-focused brokerage Robinhood rose 2 per cent.