The price of bitcoin crossed the US$30,000 mark last week, driven by investors’ excitement about the prospects of high-profile investment firms jumping deeper into digital assets by launching spot crypto exchange-traded funds (ETFs).
Bitcoin, the world’s largest cryptocurrency by market capitalization, rose 15% following news that big name issuers were looking to launch spot bitcoin ETFs. Bitcoin surpassed the US$31,000/BTC mark on June 23, 2023, its highest level over the past 18 months. The crypto has surged by more than 80% since the beginning of the year.
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The frenzy was fueled by the news that BlackRock, the world’s largest asset manager with roughly US$9 trillion, filed on June 15 for a spot bitcoin ETF. The iShared Bitcoin Trust would track the cryptocurrency’s underlying market price, allowing investors to get exposure to the crypto. The ETF would use Coinbase Custody as its custodian, the filing with the US Securities and Exchange Commission (SEC) shows. BlackRock currently has an existing strategic partnership with Coinbase.
The BlackRock filing has led to a flurry of similar applications from rival investment firms. On June 20, fund companies Invesco and WisdomTree refiled applications with the SEC to launch the Invesco Galaxy Bitcoin ETF and the WisdomTree Bitcoin Trust, respectively. Days earlier, Bitwise submitted plans for a similar vehicle.
US investors currently have access to bitcoin futures ETFs solely. These instruments invest in bitcoin futures contracts, or agreements to purchase or sell bitcoin at a certain price on a specified date. A spot bitcoin ETF would allow investors to invest in the token directly, and provide easier access to the asset through traditional brokerage accounts.
Industry experts and observers believe that the BlackRock filing could be a sign that the US SEC might finally approve physically-backed bitcoin ETFs. These investment products have repeatedly been rejected by the regulator over concerns relating to fraud and manipulation in the spot market for bitcoin.
“When the world’s largest asset manager makes a move like this, other issuers are going to take notice because the stakes are so high in the Bitcoin ETF race,” Nate Geraci, president of advisory firm The ETF Store, told Bloomberg on June 21.
“There has been absolutely no indication that the SEC is ready to entertain a spot Bitcoin ETF. The likely assumption is that BlackRock may know something.”
According to Bloomberg Intelligence, about 30 attempts have been made so far to introduce a spot bitcoin ETF. WisdomTree has made two previous attempts to secure approval for such a product but both applications were rejected by the SEC in December 2021 and October 2022, respectively.
Invesco initially partnered up with Mike Novogratz’s Galaxy Digital to file for the Invesco Galaxy Bitcoin ETF in September 2021. The firm is now looking to reintroduce the instrument.
The US SEC has also rejected proposals for spot bitcoin ETFs from firms including Fidelity, Cboe Global Markets and NYDIG, Reuters reported earlier this month. The watchdog is currently being sued by Grayscale Investment over its refusal to allow the conversion of its flagship spot Grayscale Bitcoin Trust into an ETF. The US SEC argued that the proposal did not meet anti-fraud and investor protection standards, according to a March 2023 report by Reuters.
A challenging year for the crypto industry
The crypto sector has been undergoing a period of hardship. The market is still reeling from the scandal of FTX’s collapse, the sector is facing increased regulatory pressure, and prominent exchanges are being slammed by high-profile lawsuits.
Earlier this month, the US SEC sued both Coinbase and the world’s largest crypto exchange, Binance. The watchdog is alleging that Binance violated a variety of securities laws by operating exchanges, broker-dealers, and clearing agencies without the proper licenses. It also claims that Binance allowed for commingling of customer funds, that its founder, Changpeng Zhao, was running the business through a “web of deception,” “secretly” controlling Binance.US, and that a Zhao-owned and operated entity was inflating Binance.US’s trading volume.
The lawsuit against Coinbase, meanwhile, alleges that the crypto exchange has, since at least 2019, made billions of dollars by operating as a middleman on crypto transactions, while evading disclosure requirements meant to protect investors. It also claims that Coinbase traded at least 13 crypto assets that are securities that should have been registered, including Solana, Cardano and Polygon.
The US SEC also filed lawsuits against crypto lender Genesis as well as exchange platforms Gemini and Kraken earlier this year for breaking securities laws. Kraken eventually settled with the regulator, agreeing to pay a US$30 million fine and shutter its US crypto staking operation.
Increased regulatory scrutiny in the crypto space follows a series of massive company collapses and scandals.
In May, the fall of the Terra stablecoin project and its associated Luna reserve asset cryptocurrency triggered a domino effect on the whole crypto market, ultimately contributing to insolvency troubles at both crypto lender Celsius and hedge fund Three Arrows Capital.
In November, FTX, once one of the world’s largest crypto exchanges, filed for bankruptcy protection after a dramatic series of events led to a run on deposits and a selloff of FTT, its in-house crypto token. Gross negligence has since been exposed.
After reaching all-time high levels in 2021, the crypto market has undergone a prolonged “crypto winter.” Total market capitalization was cut in half in 2022, starting the year off at US$2.2 trillion to hit an annual low of US$1 trillion in November, according to The Block.
Featured image credit: edited from Freepik
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