The cryptocurrency market rallied on Thursday as the US Securities and Exchanges Commission (SEC) approved exchange-traded funds (ETFs). After the announcement, Bitcoin briefly touched $47,600, the highest since December 2021, before cooling down to $46,600 for the first time since April 2022. It has gained 1.5 per cent in the last 24 hours.
Ethereum, the second largest cryptocurrency by market capitalisation, was up over 10 per cent and was trading at over $2,580 on Thursday at 8:30 am, according to CoinMarketCap. Other smaller tokens like Cardano, Avalanche, Polkadot and Polygon also traded over 10 per cent in the green.
The US SEC approved 11 spot Bitcoin ETFs, including those by BlackRock, Invesco and Fidelity. These ETFs, seen as game changers for Bitcoin, will allow investors exposure to the world’s largest cryptocurrency without directly owning it.
These ETFs will be listed on the Nasdaq, New York Stock Exchange (NYSE), and Chicago Board Options Exchange (CBOE) and will comprise physical Bitcoin purchased from exchanges. According to a report by Reuters, Nasdaq and CBOE have also created a mechanism for market surveillance with Coinbase, the largest crypto exchange in the US.
The ETFs will also allow institutional investors to invest in Bitcoin without directly owning these digital assets.
Even before the US SEC’s approval, big fund managers had started a fee war to attract more investors. Earlier this month, BlackRock announced it would charge 0.25 per cent as its fee rather than 0.30 per cent announced earlier. Ark Investment Management lowered the fees to 0.21 per cent from 0.25 per cent.
The approval of ETFs also marks a U-turn with respect to the SEC’s stance on these funds. Since 2013, the commission has rejected Bitcoin ETFs, stating that these can be easily manipulated. However, last year, a US court ruled that the SEC was wrong to reject the application by Grayscale Investments to convert its existing Grayscale Bitcoin Trust into an ETF.
For now, the approval of Bitcoin ETFs seems like a big win for the crypto industry, which has been struggling with a number of troubles since the fall of Sam Bankman-Fried’s FTX.
Crypto industry bullish
The cryptocurrency industry said the approval of Bitcoin ETFs could lead to wider adoption of these tokens and change the perception of the cryptocurrencies.
“A regulated Bitcoin financial product approved by a major global financial regulatory like the SEC will add a lot of credibility to digital assets which will create trust among institutional investors and encourage more traditional financial institutions to enter the space,” said Shivam Thakral, chief executive officer at BuyUcoin.
“This move is expected to bring about increased adoption, liquidity and overall market maturity. It also signifies a shift in the perception of cryptocurrencies from a niche asset class to one that is gaining mainstream acceptance,” added Edul Patel, CEO at Mudrex.
Ashish Singhal, co-founder and group CEO of PeepalCo, which runs CoinSwitch, said that the move may lead to volatility in the short-term but will lead to a jump in the long-run.
“With the growing demand for Bitcoin as a store of value, analysts predict strong potential for value appreciation in the long term,” he said in a post on social media platform X.
Thakral added, “We are optimistic that other major crypto markets like India will soon follow the trend and create a more regulated environment for digital asset-based financial products.”
First Published: Jan 11 2024 | 9:27 AM IST
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