How Significant is SEC’s Approval of Spot Bitcoin ETFs?
As anticipated, the US Securities and Exchange Commission (SEC) has approved the first spot Bitcoin exchange traded funds (ETF) in what is widely being described as a watershed moment for the crypto industry.
The securities regulator has given the go-ahead to 11 ETFs, representing a significant milestone and potentially opening the floodgates to mass crypto adoption.
It comes after an embarrassing false start earlier this week which saw an “unauthorised” tweet announcing the approval sent from the SEC’s X account, prompting the price of Bitcoin to surge.
Announcing the decision for real on Wednesday, Gary Gensler, Chairman of the commission, said approval was “the most sustainable path forward”.
But he went on to say the SEC did not approve of or endorse Bitcoin in general, adding: “Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”
Crypto ‘here to stay’
Until now, countless investors have been hesitant about actually buying Bitcoin due to the relatively painstaking process of doing so and the risks associated with using unregulated exchanges.
Those who took the plunge would have to either have to open an account with a crypto trading platform or store Bitcoin in digital wallets.
However, the SEC’s symbolic decision means these investors are now being given exposure to the world’s most popular cryptocurrency via a number of regulated products, without directly holding it.
Authorisation of the ETFs has largely been driven by external pressure, with US courts overturning various SEC rulings in recent months.
An ETF is best described as a group of assets divided into shares, allowing investors to buy or sell shares in funds containing Bitcoin.
“Approval of a Bitcoin Spot ETF is a huge milestone,” comments Eric Demuth, Co-founder and CEO at Bitpanda. “From now on, long-term capital from institutional investors will flow into the crypto market.
“This decision will fundamentally change the industry. Until now, many institutional investors were unable to operate in the crypto sector within their regulatory framework, as they had to invest in traditional financial products. The ETFs that are now available will be a hugely important tool for institutions and major banks in the US.”
He adds: “I believe the approval will further encourage the mass adoption of crypto assets by institutional investors in the US, who may be more willing to invest in Bitcoin if they have access to it through investment products such as ETFs.
“This is the next step into mainstream finance. Crypto is here to stay.”
What about regulation?
Questions are already being asked about what the SEC’s approval of spot Bitcoin ETFs means for the crypto regulatory landscape.
While the decision can undoubtedly be seen as a big win for crypto enthusiasts, pressure is likely to be on regulators around the world to accelerate the introduction of crypto regulation.
“The SEC's nod means Bitcoin is sprinting into the mainstream faster than a digital gold rush, with other jurisdictions having to follow suit,” says Yoann Lewkowitz, Head of Legal at blockchain protection company Coincover.
“With DeFi becoming embedded into TradFi, the onus is on regulators to begin moving the needle on putting the right safeguards in place to support this transition and foster greater trust around the crypto market.
“As with any new financial instrument, however, a spot Bitcoin ETF does not come without risks. Volatility is a given, and widespread adoption would lead to fund managers having to accumulate a large amount of Bitcoin in self-custodial or semi-custodial wallets, which could become prime targets for hacks, attacks and possible human error.
“This will lead to higher expectations around risk mitigation and security capabilities, meaning security is paramount and must be a top priority for ETF managers.”
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