Eight years in the making, the United States Securities and Exchange Commission’s (SEC) silent approval of a Bitcoin (BTC) exchange-traded fund (ETF) last week elicited a wave of exuberance in the crypto space and sent the price of the key digital currency to a new all-time high.
Despite some analysts and industry participants having reservations regarding the nature of the approved product — ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Bitcoin Strategy ETF (BTF) being futures-based rather than tracking Bitcoin’s spot price — the development has been overwhelmingly hailed as a breakthrough moment in crypto history.
Ahead of BITO’s momentous launches on the New York Stock Exchange, it had been unclear how much interest the new offerings would attract. On the first day of BITO, trading exceeded even the most optimistic expectations as the new ETF delivered a record-breaking volume. Meanwhile, the price of BTF has fallen slightly during the first day.
Excited as the crypto crowd is, the question remains: Why is this happening now?
Years of regulatory resistance
The ETF approval is a watershed moment for the industry. In a written statement to Cointelegraph, Bitcoin Foundation chairman Brock Pierce remarked that “This moment is long-awaited, as numerous entrepreneurs and firms have sought approval from regulators since as early as 2013.”
Since the Winklevoss brothers had first attempted to secure regulatory approval for a Bitcoin exchange-traded fund eight years ago, the SEC got into a habit of either rejecting or repeatedly delaying decisions on multiple proposed Bitcoin ETFs.
The SEC has long argued that the market underlying these proposed instruments is nothing short of a minefield for unsuspecting traders. The regulator’s chief concerns included possible Bitcoin price manipulation, insufficient liquidity, cybersecurity issues and lack of transparency of trading data needed to price the asset.
In early April, SEC Chair Gary Gensler had first hinted that he could be open to an ETF tracking the price of regulated Bitcoin futures rather than those tied to the actual asset, sparking a new round of proposal filings. In Gensler’s view, exposure to BTC futures, especially those regulated under the Investment Company Act of 1940, provides a double casing of investor protection that could be deemed sufficient by the agency’s standards.
In late September, speaking at the Future of Asset Management conference, Gensler doubled down on the feasibility of a Bitcoin futures exchange-traded product, suggesting that the previous comments expressed a carefully weighted position rather than a whimsical turn of the phrase.
Congratulations to @ValkyrieFunds on the launch of its Bitcoin Strategy #ETF $BTF!
Learn more about the U.S.-listed Bitcoin futures ETF and how it invests in a new future: https://t.co/mDrWbHn0xI pic.twitter.com/rE5QibNWiB
— Nasdaq (@Nasdaq) October 22, 2021
Indeed, the futures-based model addresses many investor protection grudges that the SEC holds toward the physical Bitcoin products. Because investors essentially bet on whether BTC price will go up or down, they don’t need to touch the actual cryptocurrency and there is no requirement for the ETF provider to custody Bitcoin, thus eliminating a major source of regulatory headache.
Furthermore, Bitcoin futures, overseen by the Commodity Futures Trading Commission (CFTC), have been offered since 2017 on the Chicago Mercantile Exchange. This is an instrument that has a proven track record and is well understood by financial regulators.
Why now?
Gary Gensler, whose appointment to the top securities regulator role in April 2021 had been met with excitement by much of the crypto community, has quickly proved to have a more complicated relationship with the digital asset space. Particularly, his relentless drive to categorize most crypto assets as securities and regulate them as such contributed to many in the industry striking him off the list of crypto…
Read More: cointelegraph.com