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News/A Dawn of Bitcoin ETFs: Wall Street Taken by Storm, ETFs Spark Boom and Debate

A Dawn of Bitcoin ETFs: Wall Street Taken by Storm, ETFs Spark Boom and Debate

Van Thanh Le

Jan 12 2024

4 months ago5 minutes read
A cute chibi cubic-styled humanoid robot enthusiastically holding a Bitcoin symbol in one hand

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The Bitcoin ETF Era: BlackRock and Grayscale Steal the Spotlight, Market Poised for Boom

Just as the New York Stock Exchange bell prepares to chime, a digital daybreak unfolds. BlackRock's iShares Bitcoin Trust (IBIT) led the charge, launching in the pre-market with a remarkable 27.31% surge, reaching a trading price of $27.93.

brave_screenshot_finance.yahoo.com.png
Source: Yahoo

The trading volume of IBIT was equally impressive, raking in a substantial $2 million worth of shares during the pre-market session, a volume typically seen in a full trading day.

Not to be outdone, Grayscale's Bitcoin Trust (GBTC) ETF also entered the pre-market arena, witnessing a 2% increase in its trading value.

grayscale btc trust.webp
Source: Yahoo

Pre-market trading, occurring between 8:00 am and 9:30 am Eastern Time, offered valuable insights into potential market behavior once the official trading session began.

The US Securities and Exchange Commission (SEC) played a pivotal role by granting approval for 19b-4 applications from multiple firms, including ARK 21 Shares, Invesco Galaxy, VanEck, WisdomTree, Fidelity, Valkyrie, BlackRock, Grayscale, Bitwise, Hashdex, and Franklin Templeton.

Official trading of all 11 approved spot Bitcoin ETFs commenced on January 11. Bitcoin saw a small increase after the ETF approval news, just to see its price soar over $48,500 as the total trading volume of ETFs surpassed $2 billion in less than one hour.

Market analysts are anticipating a bullish trend with the official trading of these ETFs, predicting a substantial inflow of capital into the market.

Grayscale has boldly asserted that GBTC was the first to begin trading among the newly approved spot Bitcoin ETFs, and it performed admirably in pre-market trading, with a price of $40.496 on the NYSE Arca.

However, it's worth noting that GBTC charges a relatively high fee of 1.5%, significantly higher than the fees of its competitors, which range from 0.2% to 0.9%. This fee difference will likely be a point of consideration for investors as they navigate the emerging world of spot Bitcoin ETFs in the US market.

A Decade on, Bitcoin ETFs Enter Wall Street Spotlight: Will Crypto Finally Go Mainstream?

More than a decade has elapsed since the Winklevoss twins first sought approval for a Bitcoin ETF back in July 2013. While their initial endeavor didn't succeed, it marked the early steps in the cryptocurrency journey.

In 2013, Bitcoin was just beginning to gain traction, with a market cap slightly exceeding $1 billion and trading at around $87 per coin. Fast forward to today, and Bitcoin's market cap approaches a staggering $900 billion.

chart (2).webp

At the outset, Wall Street viewed the Winklevoss twins' proposal with skepticism. Bitcoin, as an asset class, seemed immature for the then $2 trillion ETF market. The SEC, in 2013, raised concerns about Bitcoin's nascent market infrastructure, doubting its ability to meet the rigorous standards required for institutional investment.

However, a comparison between the 2013 proposals and those submitted in 2024 reveals a remarkable transformation in the industry. Notably, custody methods have grown more sophisticated, reflecting the industry's maturation.

In the 2024 filings, advanced market surveillance mechanisms were integrated, marking a significant leap forward from the initial proposals. Though the SEC rejected the Winklevoss' ETF application in 2017, citing concerns about fraud and market manipulation, it left the door open for potential approval in the future.

A futuristic cityscape at dusk, with a neon-lit Bitcoin symbol hovering in the sky.webp

Interestingly, despite their absence in recent filings, the Winklevoss twins continue to play a pivotal role through Gemini, serving as key custodians for several Bitcoin ETFs. The SEC's historic approval of 11 spot Bitcoin ETFs, including proposals by Bitwise, Grayscale, Hashdex, and BlackRock, among others, has generated significant buzz.

However, SEC Chair Gary Gensler has been keen to clarify that the approval of Bitcoin ETFs does not constitute an endorsement of Bitcoin itself, urging investors to exercise caution. Estimates suggest substantial inflows into these ETFs, with Valkyrie anticipating $200-$400 million and VanEck eyeing an initial $1 billion.

brave_screenshot_www.sec.gov.png
Source: sec.gov

Seed funding and competitive fee structures have emerged as key factors in this space. The industry also received clarification from SEC Commissioner Caroline A. Crenshaw, who emphasized that the approved products are Exchange Traded Products (ETPs), not traditional ETFs, to avoid potential investor confusion.

brave_screenshot_www.sec.gov (1).png
Source: sec.gov

The approval of spot Bitcoin ETFs saw a close 3-2 vote among SEC commissioners, with Commissioners Gensler, Peirce, and Uyeda voting in favor, while Crenshaw and Lizárraga dissented. Industry leaders from firms like BlackRock, Fidelity, and Grayscale have expressed optimism, viewing these ETFs as a gateway to democratizing Bitcoin access.

Analysts foresee a significant influx of capital into the crypto market, potentially bolstering Bitcoin's market cap, liquidity, and stability. This approval could recalibrate market dynamics, bringing them more in line with traditional financial markets.

The impact isn't confined to the United States alone. The approval is set to influence crypto development in Asia, according to Animoca’s Yat Siu, with Hong Kong potentially leading the way in introducing spot crypto ETFs. Asian investors, especially the younger generation, appear more receptive to such investments, signaling widespread adoption.

An abstract representation of Bitcoin price charts forming a mesmerizing mosaic pattern.webp

In fact, the approval could reshape perceptions of cryptocurrencies as investment assets in Asia, attracting more institutional investors. This development mirrors Europe's introduction of similar funds before the U.S.

Grzegorz Drozdz, a market analyst in the EU, believes that Bitcoin ETFs have expanded market access beyond traditional crypto exchanges and wallets. While the global crypto market capitalization currently stands at $1.78 trillion, investment funds represent just 2.9% of this total.

Drozdz suggests that the approval of U.S. Bitcoin ETFs may have long-term implications for crypto development and potentially trigger a new bull market. Given Bitcoin's dominant market share at 53.7%, its success could reverberate across other digital currencies.

A bustling Wall Street scene with a blend of traditional and digital elements, where stock traders and investors interact with Bitcoin icons floating in the air.webp

However, not everyone is on board with this development. Critics, including SEC Commissioner Caroline Crenshaw, express concerns about the potential flood of the market and its potential harm to investors. They argue that underlying spot Bitcoin markets are susceptible to fraud and manipulation, lacking sufficient oversight.

Within the crypto community itself, voices like Chris Blec worry that institution-driven ETFs could undermine Bitcoin's decentralized nature. Other critics, such as Stephen Diehl and Peter Schiff, unfavorably compare Bitcoin to traditional assets like gold, casting doubt on its utility.

Hester Peirce, known as 'crypto mom,' has been a vocal critic of the SEC's delayed approval of Bitcoin ETFs, suggesting regulatory bias against new products. She highlights the inconsistent treatment of crypto ETPs compared to other commodity-based ETPs, which has raised concerns about the SEC's credibility in the industry.

Robinhood Plans to List Spot Bitcoin ETFs Quickly

Robinhood's CEO, Vlad Tenev, is wasting no time in listing the 11 newly approved spot Bitcoin ETFs. This swift action comes hot on the heels of the Securities and Exchange Commission's historic green light for these ETFs, signifying a major leap forward for the crypto industry.

Tenev couldn't contain his enthusiasm about the SEC's decision, underlining Robinhood's unwavering dedication to providing crypto accessibility ahead of the competition. The integration of these ETFs into the traditional financial landscape is a pivotal moment, offering customers much-needed clarity and advanced risk management tools.

Among the 11 tradable spot Bitcoin ETFs are offerings from notable players like Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity, and Franklin Templeton. Robinhood is not just bringing these options to the table; they're also equipping their users with valuable educational resources on Bitcoin, ETFs, and effective risk management strategies.

Franklin Templeton Adopts 'Laser Eyes' Meme After Spot Bitcoin Approval

Franklin Templeton, a prominent asset manager with assets totaling $1.46 trillion, has joined the 'laser eyes' meme trend from the world of Bitcoin. This decision comes on the heels of the U.S. Securities and Exchange Commission's (SEC) approval of spot Bitcoin ETFs.

For those unfamiliar, the 'laser eyes' meme is a social media phenomenon that emerged in early 2021 within the cryptocurrency community. Crypto enthusiasts add red laser beams to their profile pictures, symbolizing an unwavering dedication to driving Bitcoin's price higher. It has since become a symbol of enthusiasm and optimism for Bitcoin.

By adopting this meme, Franklin Templeton aims to connect with crypto-native audiences and give its image a modern twist. The asset manager has updated its social media avatar with Benjamin Franklin sporting 'laser eyes,' signaling its alignment with the cryptocurrency community's shared beliefs and goals.

In today's competitive landscape, where various financial institutions are launching Bitcoin ETFs, it's essential to stand out. Franklin Templeton's decision to embrace crypto culture is a unique approach, differentiating itself from traditional strategies.

Jenny Johnson, the President and CEO of Franklin Templeton, shed light on the company's exploration of blockchain technology and its venture into the world of cryptocurrency. She emphasized blockchain's potential to revolutionize unconventional asset classes and enhance the efficiency of financial products.

Johnson also mentioned specific initiatives, including the development of a tokenized money-market fund and a blockchain-based shareholder recordkeeping system. This signals Franklin Templeton's readiness to offer blockchain and crypto-related products, pending decisions by retirement plan fiduciaries. They view blockchain as a medium for delivering active, risk-adjusted investment decisions.

Bitcoin Fever Grips Wall Street: Spot ETFs Roar on Day One

Wall Street witnessed a historic gold rush on Thursday as the eagerly awaited spot Bitcoin ETFs burst onto the scene, racking up a staggering $4.5 billion in trading volume in their debut on January 11, as per Cointelegraph. This remarkable debut was spearheaded by BlackRock's iShares Bitcoin Trust (IBIT), which alone generated over $1 billion in volume, capturing a significant 22% slice of the day's total. Not far behind, Fidelity's spot Bitcoin ETF also made waves with an impressive $685 million in trades.

ibit chart.webp
Source: Yahoo

Grayscale's Bitcoin Trust (GBTC) was another major player, commanding a substantial $2.2 billion in total volume. However, Hashdex's much-anticipated BTC ETF experienced a hiccup, delaying its trading start due to pending regulatory approvals. The trading landscape was a complex mix of inflows and outflows, with a notable chunk of GBTC's trades stemming from sales, as investors gravitated towards ETFs with lower fees.

ProShares' Bitcoin Strategy ETF was not left out of the frenzy, witnessing over $2 billion in volume, predominantly from sales. This intense trading activity had a tangible impact on the market, with an estimated 47,000 Bitcoin, valued at around $2.1 billion, potentially needing to be snapped up on the spot market due to the ETF buying spree.

Analysts are advising investors to hold their breath until the morning of January 13 for a clearer understanding of spot inflows and the actual Bitcoin purchases underpinning them. The day was marked by a historic trading frenzy, with over 700,000 transactions recorded, signaling a robust retail investor turnout. 

This contrasts sharply with the predominantly institutional trading seen in other ETFs, like Invesco's QQQ. Grayscale's dominance was further underscored as its converted GBTC fund alone accounted for over $2.3 billion in trade volume, highlighting the shifting dynamics between retail and institutional investors in this evolving market.

A Tale of Two Approaches: Wall Street Divided on Bitcoin ETFs

UBS, the Swiss banking heavyweight, is cautiously stepping into this arena. They're offering Bitcoin ETF trading to select clients, but with strings attached. These clients must not actively seek out these trades and must have a higher risk tolerance. Meanwhile, Citigroup is opening doors for institutional clients to engage with Bitcoin ETFs, both in execution and asset servicing. They're even mulling over the idea of extending this to individual wealth clients.

Vanguard Group, however, is charting a different course. Staying true to its roots in equities, bonds, and cash, Vanguard is steering clear of spot Bitcoin ETFs on its brokerage platform. This decision hasn't sat well with some of their clientele. Disgruntled voices are rising, with threats of transferring funds to rivals like Fidelity, which embraced the Bitcoin ETF trend by launching one of the 10 spot Bitcoin ETFs on January 11.

On the other end of the spectrum is Robinhood. The popular U.S. investment app is embracing Bitcoin ETFs with open arms, listing all 11 spot Bitcoin ETFs for both retirement and brokerage accounts. This move is a testament to their belief in cryptocurrency as the future of finance, offering broader access to Bitcoin through ETFs. Robinhood's CEO, Vlad Tenev, sees the SEC's nod to these ETFs as a pivotal moment for enhancing risk management in crypto investments.

CoinShares exercised its option to buy Valkyrie Funds' ETF unit post-SEC's spot bitcoin ETF approval. The move aims to replicate European success in the U.S. The acquisition adds $110 million to CoinShares' $4.5 billion AUM. It includes Valkyrie's Bitcoin Fund and extends to Bitcoin and Ether Strategy ETF as well as the Bitcoin Miners ETF.  

Futuristic cityscape blending finance and crypto, with a holographic Bitcoin ETF moon illuminating golden coin-paved streets.webp

Other firms like Merrill Lynch and JPMorgan are navigating these waters with varied strategies. Merrill Lynch is on the sidelines, waiting for more efficient trading mechanisms for spot Bitcoin ETFs. JPMorgan, on the other hand, has already made these ETFs available on its brokerage platform, though not without cautionary risk disclosures.

Bitcoin ETFs: A Regulatory Tightrope Walk with Bullish Bets

The SEC's green light for 11 spot bitcoin ETFs ignited a firestorm of reactions, with Senator Elizabeth Warren leading the charge against the move. Warren's stance is clear: the crypto world must align with stringent anti-money laundering regulations. 

Her proposed Digital Asset Anti-Money Laundering Act, backed by 19 senators, seeks to extend the Bank Secrecy Act's reach, incorporating KYC rules into the crypto realm. This move contrasts with other lawmakers like Sen. Cynthia Lummis and House Financial Services Committee Chair Patrick McHenry, who applaud the SEC's decision and call for more legislative progress.

Across the Pacific, South Korea's Financial Services Commission (FSC) raises eyebrows over these U.S. Bitcoin ETFs, citing potential clashes with Korean laws, particularly the Virtual Asset User Protection Act and the Capital Markets Act. 

The Bank of Korea's governor's classification of cryptocurrencies as commodities, not legal tender, adds another layer to the regulatory puzzle. Amidst these concerns, the FSC is gearing up for a thorough review, with SEC Chair Gary Gensler slated for discussions with his Korean counterpart.

Surreal hourglass with traditional gold coins and glowing Bitcoins symbolizing the transition to Bitcoin ETFs.webp

Meanwhile, JPMorgan's analysts have delved into the potential impact of these spot Bitcoin ETFs, predicting a substantial $36 billion in inflows, primarily redirected from existing crypto instruments like bitcoin futures-based ETFs, Grayscale Bitcoin Trust, and retail investors shifting from digital wallets. 

However, they remain skeptical about a significant surge of new capital into the crypto market, emphasizing the pivotal role of regulatory decisions in this scenario. The SEC's approval of these ETFs marks a historic moment, involving financial titans such as BlackRock and Fidelity.

In a strategic move, Grayscale Investments has filed for a covered call ETF, aiming to capitalize on its position in the newly approved spot bitcoin ETF, GBTC. This fund, steering clear of direct digital asset investments, follows the trading of Grayscale's GBTC and 10 other ETFs, which have seen notable trading volumes. Analysts observe that a portion of the GBTC volume might stem from outflows as shareholders transition to funds with more favorable fee structures.

What's Next After Approval of Spot Bitcoin ETFs?

The crypto world is abuzz with talks of how these ETFs might reshape the landscape, with speculation about the potential emergence of spot Ether ETFs and shifts in regulatory dynamics.

As the countdown begins, the initial 24 to 48 hours are of paramount importance. Projections indicate a flood of capital pouring into these ETFs, potentially reaching the billions—a truly unprecedented event in the ETF universe.

Financial giants boasting assets under management exceeding $100 trillion are now eyeing Bitcoin as a potential asset class. However, this move is likely to be gradual and measured, rather than an overnight flood.

Some anticipate short-term market turbulence as these ETFs lure fresh investments, which could ripple through the Bitcoin market itself.

An intricate clockwork mechanism depicting the inner workings of a Bitcoin ETF.webp

In the race to secure approval for spot Bitcoin ETFs, applicants like BlackRock and Ark Invest/21Shares have slashed fees in a bid to stay competitive. This fee reduction strategy sparks questions about the long-term sustainability of these ETFs in the business landscape.

While the green light for spot Bitcoin ETFs signifies a major milestone, attention is swiftly turning to the possibility of spot Ether ETFs. Major players like Fidelity and BlackRock have already tossed their hats into the ring, setting the stage for another potential crypto investment avenue.

The approval of spot Bitcoin ETFs has created a legal precedent, making it a formidable challenge for the SEC to dismiss spot Ether ETF applications without facing legal repercussions.

Conclusion

The approval of spot Bitcoin ETFs by the SEC has ushered in a new era for cryptocurrency investment. With major players entering the market and the potential for significant capital inflows, the crypto landscape is poised for transformation. 

FAQs

1: What is a Bitcoin ETF, and why is it significant?

A Bitcoin ETF is an Exchange-Traded Fund that tracks the price of Bitcoin. It's significant because it allows traditional investors to gain exposure to Bitcoin without owning the cryptocurrency directly, potentially leading to increased adoption and liquidity in the Bitcoin market.

2: How did the SEC's approval of spot Bitcoin ETFs impact the market?

The SEC's approval of spot Bitcoin ETFs led to a surge in Bitcoin's price and marked a significant step toward mainstream acceptance of cryptocurrencies. It also triggered a competitive fee reduction among ETF providers and raised the possibility of future spot Ether ETFs.

3: What are some key players in the spot Bitcoin ETF space?

Major players in the spot Bitcoin ETF space include BlackRock, Grayscale, Bitwise, and others. BlackRock's iShares Bitcoin Trust and Grayscale's Bitcoin Trust were among the first to launch and garnered significant attention.

4: Are there any concerns or criticisms surrounding spot Bitcoin ETFs?

Yes, there are concerns about potential market manipulation and fraud in the underlying spot Bitcoin markets. Some critics worry that ETFs could undermine Bitcoin's decentralized nature. SEC Commissioner Caroline Crenshaw has expressed concerns about the flood of the market and its impact on investors.

This article has been refined and enhanced by ChatGPT.

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