The American financial watchdog, the Securities and Exchange Commission (SEC), approves Bitcoin Spot ETFs. A historic decision for this cryptocurrency, which changes the course of its young history in the world of finance.
This is a major upheaval for the long-maligned world of cryptocurrencies. In a highly anticipated decision, the American financial markets watchdog, the Securities and Exchange Commission (SEC), has approved the marketing of investment products based on Bitcoin, called Exchange Traded Funds (ETFs). . These funds, listed on Wall Street, will closely follow the performance of the first and most famous cryptocurrencies, whose value increased by nearly 160% in 2023. The authorization of these ETFs will allow institutions and individuals to easily invest in this cryptocurrency through regulated savings products, without having to directly hold bitcoins.
The decision is historic in more than one way. Until now, the SEC had always refused to authorize such investment products.cash“, that is to say with direct exposure to bitcoin, on the grounds that the risks of market manipulation were too great, and that potential issuers would be unable to protect investors. Several players have lost their teeth in recent years, including Grayscale, 21Shares and Arkinvest. Until now, only ETFs based on futures contracts were authorized across the Atlantic.
The arrival of institutional players changes the game
However, the SEC’s arguments to oppose spot Bitcoin ETFs have lost their force over the years, so much so that an American court deemed them insufficient in the summer of 2023, after being seized by Grayscale. Bitcoin volatility also decreased significantly in 2023, before rising again at the very end of the year. The scandal of the FTX exchange platform and the regulatory tightening carried out in 2022 and 2023 on many players in the crypto world have made it possible to both sort things out and professionalize everything. Above all, the arrival in the game of asset management giants from the world of traditional finance, such as BlackRock, VanEck, Fidelity and Franklin Templeton, has changed the situation. At the end of December, all these institutions detailed the arrangements made by each of them with their market makers to guarantee the liquidity and efficiency of transactions.
The adoption of these new regulated investment products is a revolution for cryptocurrencies. “Bitcoin ETFs thus join the $7.5 trillion in assets currently distributed across more than 3,000 ETFs in the United States alone, and will promote investor access to this young class of digital assets.» summarizes Ben Laidler, strategist for eToro.
Influx of requests
Thousands of Americans will be able to invest in Bitcoin, by integrating it into savings products if they wish, without having to hold it directly. Until now, individuals wishing to invest in Bitcoin had to go through exchange platforms, with a complex user experience and associated risks. Eight of them accounted for 90% of global trading volumes, according to crypto data firm Kaiko Research. The market will now attract large institutional investors, eager to diversify their investments and take advantage of the returns offered by Bitcoin. “Cryptocurrencies were by far the best performing asset class of 2023», recalls Ben Laidler.
In 2023, capital inflows into crypto investment products reached $2.2 billion, according to UK manager Coinshares. However, the arrival of financial titans like BlackRock, who build investment portfolios then replicated by numerous institutions, will mechanically increase the demand for bitcoins. According to analysts at Standard Chartered, the new Bitcoin Spot ETFs could attract $50 billion to $100 billion of capital into the sector in 2023 alone. Others estimate them closer to $55 billion over five years.
But the supply of Bitcoin being by definition limited – there will never be more than 21 million in the long term according to the algorithm defined by its creator Satoshi Nakamoto -, this influx of demand can have an impact on the price of the cryptocurrency that the coming weeks will allow us to measure. Because the management companies that offer these ETFs must buy Bitcoins. On Wednesday, when the approval was announced, the price of Bitcoin stagnated around 45,000 dollars (or around 41,000 euros). In its wake, Ethereum remained around $2,000. Investors are already anticipating the fact that Ethereum Spot ETFs will also soon be authorized.
Fierce battle ahead
The battle promises to be fierce between the dozen companies that will compete for this new spot bitcoin ETF cake. It is already being played out on the fees that will be applied to investors. On the one hand, asset management giants BlackRock, VanEck, Fidelity, and Franklin Templeton have announced entry fees around 0.3%. THE “pure players», those who have specialized since their creation in cryptoassets like Bitwise and Galaxy, assert their long-standing credibility in the field to assert that they are best placed to capture good market share despite higher fees.
For the moment, the best positioned seems to be Grayscale, which has been operating in the sector for several years thanks to other crypto products. The company owns about 3% of the world’s bitcoins. The hundreds of thousands of clients who now hold shares of his “trust» will automatically become owners of the Grayscale ETF. Many of these customers will be reluctant to switch to another provider because it would require them to pay capital gains tax.