On Wednesday the 10th of January (United States time) 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing and trading of a number of spot Bitcoin Exchange-traded product (ETP) shares.
You will read the term Bitcoin ETF (Exchange-traded fund) in most articles, rather than ETP which is referenced in the Securities and Exchange Commission Release No. 34-99306, because an Exchange-traded fund is simply a sub-set, or type of Exchange-traded product.
The decision follows many years of outright rejections and delays from the SEC, of many proposals to launch spot BTC ETFs. Sorry about all the acronyms however it is necessary for this article, so please bear with me.
What is a spot Bitcoin ETF?
Great question! There are three steps to answering this:
- What does Spot price (spot) mean?
- What is an Exchange-traded fund (ETF)?
- What is a spot Bitcoin Exchange-traded fund (spot BTC ETF)?
What does 'spot' (Spot price) mean?
A spot price is the current market price at which a commodity, security or currency can be bought or sold for immediate delivery and payment. It represents the fair value of a specific product at a particular time and location. While futures prices reflect how much the markets believe the asset will be worth when the future expires, spot prices show how much it is worth right now. Essentially it’s just the price someone is willing to buy or sell at right now.
What is an ETF (Exchange-traded fund)?
An Exchange-traded fund (ETF) is an investment tool traded on traditional stock exchanges (such as the New York Stock Exchange and Nasdaq), much like individual stocks. They hold assets like stocks, commodities, bonds or cryptocurrency, and their prices fluctuate throughout the trading day as shares are bought and sold on the exchange.
What is a spot Bitcoin Exchange-traded fund (spot BTC ETF)?
A spot Bitcoin (BTC) ETF therefore is a type of investment fund that aims to closely track the actual, or “spot”, price of the digital currency Bitcoin (BTC), less the funds fees. It’s traded on traditional stock exchanges like any other ETF, allowing investors to gain exposure to Bitcoin without needing to buy and securely store the digital currency, or open separate crypto exchange accounts themselves.
Instead of investing in Bitcoin futures contracts or other derivatives, a spot Bitcoin ETF directly holds the underlying asset, Bitcoin, in its portfolio, creating a direct link to the real-time price movements of the cryptocurrency.
Which Exchange-traded funds were approved?
All up, 11 BTC ETFs were approved on Wednesday 10th January, 2024. However, it is likely many more will now apply given these approvals. The approved spot Bitcoin ETFs are (in no particular order):
What was the impetus behind the SEC announcement?
In the Statement on the Approval of Spot Bitcoin Exchange-Traded Products by SEC Chair, Gary Gensler, it is made clear that although the ETFs have been approved, this is by no means a recommendation to invest in BTC…
"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."
SEC Commissioner, Caroline Crenshaw, went further by issuing a “Statement Dissenting from Approval of Proposed Rule Changes to List and Trade Spot Bitcoin Exchange-Traded Products”. In the statement she lists many concerns, including …
"I am concerned that today’s actions will create the imprimatur of Commission approval and oversight of the underlying spot markets when really no such oversight exists. I am concerned that there will be confusion about what exactly these products are – (they are not ETFs registered under the Investment Company Act of 1940, the ubiquitous products that today are used by millions saving for retirement) – and that investors may infer protections that do not in fact exist."
So, what was the impetus behind this announcement and why did many in the crypto industry expect an announcement by the 10th January 2024?
The quick answer to this is that the SEC lost a court case in 2023 and had to make a decision on one of the ETFs, conversion of Grayscale Bitcoin Trust to a spot ETF, by 10th Jan 2024. See Grayscale Investments, LLC v. SEC, No. 22-1142, 82 F.4th 1239 (D.C. Cir. 2023).
In the spirit of competition and providing a level playing field, rather than announce a decision to approve just this one, they approved 11 at once with Gary Gensler stating …
"Commission staff is separately completing the review of registration statements for 10 spot bitcoin ETPs simultaneously, which will help create a level playing field for issuers and promote fairness and competition, benefiting investors and the broader market."
