Spot bitcoin ETFs to start trading in big boost to crypto industry

January 14, 2024

By Manya Saini and Niket Nishant

(Reuters) – Several exchange-traded funds (ETFs) tied to the spot price of bitcoin will start trading in the U.S. on Thursday before the bell in a landmark moment for the cryptocurrency industry that has been demanding regulatory approval for more than a decade.

The green light from the U.S. Securities and Exchange Commission finally came late on Wednesday as it approved 11 such ETFs, ending months of negotiations with top asset managers such as BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck.

“The approval has the potential to simplify and secure Bitcoin investments for a broader investor base, which may reshape the dynamics of cryptocurrency investments,” said Rajeev Bamra, senior vice-president of digital finance at Moody’s Investors Service.

BlackRock’s iShares Bitcoin Trust and Grayscale Bitcoin Trust began trading in early premarket hours. VanEck Bitcoin Trust, Invesco Galaxy Bitcoin ETF, and ARK 21Shares Bitcoin ETF are expected to start soon.

RACE FOR MARKET SHARE

The regulatory nod is expected to start an intense competition for market share among the issuers who have already lowered the fees for the products well below the U.S. ETF industry’s standard.

Analysts at Bernstein estimated that bitcoin ETF flows will build up gradually to cross $10 billion in 2024 in its race to $80 billion by the end of next year.

“Bitcoin ETFs are expected to be an intensely competitive asset accumulation game, with 11 leading asset managers launching together,” the brokerage said in a note.

Since all the ETFs tracking an asset’s price are designed to deliver the same return to investors, fees tend to dictate market share.

The issuers have disclosed fees as low as 0.20% and some have offered to waive it off for a particular period or until it accumulates a set amount in assets.

Many ETFs issuers, including Bitwise and VanEck, have already begun marketing their products by releasing ads that tout bitcoin as an investment.

In the run up to the SEC decision, bitcoin, the world’s biggest and best-known cryptocurrency, had surged more than 150% in 2023. The market capitalization of bitcoin was more than $900 billion as of Jan. 10, according to CoinGecko.

“It (the approval) could lead to substantial inflows from institutions interested in entering the cryptocurrency market,” Bamra of Moody’s said.

The SEC had earlier rejected all spot bitcoin ETFs on investor protection concerns. Hopes of a change in its stance gained ground last year after a federal appeals court ruled that the agency was wrong to reject Grayscale’s application to convert its existing Bitcoin Trust into a spot bitcoin ETF.

Spot bitcoin ETFs to start trading in big boost to crypto industry — FILE PHOTO: Physical representations of the bitcoin cryptocurrency are seen in this illustration taken October 24, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

CRYPTO STOCKS GAIN

Cryptocurrency-related stocks climbed with bitcoin miners such as Riot Platforms and Marathon Digital rising 4.2% and 5%, respectively, in premarket trading.

Bitcoin investor Microstrategy gained 2.5% and crypto exchange Coinbase 4.4%, while the ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, added just 0.4%.

Shares of retail trader-focused brokerage Robinhood rose 3%.