SEC approves spot Bitcoin ETFs after 11 years of rejections

The U.S. SEC has officially approved the first spot Bitcoin exchange-traded funds (ETFs) after 11 years of rejecting such products, according to a Jan. 10 regulatory filing.

The first spot Bitcoin ETF application was filed in 2013, and the SEC rejected every subsequent proposal due to various concerns related to financial stability and market integrity.

The approval comes after a period during which more than 20 similar applications were disapproved under former Chair Jay Clayton and up until March 2023. A pivotal change occurred following a court ruling that the SEC had not adequately justified Grayscale’s rejection of a proposed ETP, leading to a reassessment of similar filings.

All 11 ETFs approved

The approved ETFs include the Grayscale Bitcoin Trust, Bitwise Bitcoin ETF, Hashdex Bitcoin ETF, iShares Bitcoin Trust, Valkyrie Bitcoin Fund, ARK 21Shares Bitcoin ETF, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust, WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund, and Franklin Bitcoin ETF.

Most ETF issuers have filed requests for acceleration, allowing them to launch the funds simultaneously on Jan. 11.

The Commission’s approval, issued on an accelerated basis, is a significant nod to the evolving landscape of financial instruments, especially in recognizing the potential of Bitcoin-based exchange-traded products (ETPs).

SEC chair Gary Gensler said in a statement that the approval does not constitute and endorsement of Bitcoin or the general crypto industry. He added that the SEC continues to hold the view that Bitcoin and crypto are risky and volatile assets.

In a statement on the SEC website, Gensler said:

“While we recognize the changing landscape, our decision to approve these products is confined to bitcoin ETPs and does not extend to other crypto asset securities or their legal status.”

The decision is particularly notable as it overcomes previous hurdles related to preventing fraudulent and manipulative acts and practices in listing such products.

SEC concedes on surveillance concerns

In its analysis, the Commission said that surveillance-sharing agreements with regulated markets of significant size would be sufficient to address its concerns about market manipulation and fraud.

Each exchange involved has a comprehensive agreement with the Chicago Mercantile Exchange (CME) through their membership in the Intermarket Surveillance Group, which bolsters confidence in their ability to monitor and prevent market manipulation effectively.

A critical aspect of the Commission’s decision was the correlation analysis between the Bitcoin futures market and the spot Bitcoin market. The analysis revealed a consistently high correlation, suggesting that surveillance of the futures market would effectively encompass relevant activities in the spot market.

This correlation stands as a key factor in mitigating the risks of fraud and manipulation. It marks a shift in the regulator’s stance, which previously argued that no such correlation exists.

The decision is expected to pave the way for more widespread adoption of cryptocurrency-related financial products, offering investors new opportunities and diversification options in the evolving digital asset space.