After years of moving the goalposts, SEC Chairman Gary Gensler last month finally joined the SEC’s two non-Democrat commissioners to allow approval of the first U.S. spot bitcoin exchange-traded funds (ETF). This watershed event for both cryptocurrency and traditional financial sectors should bring greater accessibility and accountability for bitcoin markets, while providing individual investors with new investment opportunities, efficiencies, and cost savings for their portfolios.
The approval of the eleven spot bitcoin ETF applications filed with the agency is a testament to the evolving financial landscape, where digital assets such as bitcoin increasingly intersect with traditional financial firms. It is also a vindication of the rule of law and the important role of courts in reviewing regulatory actions to uphold legal principles of due process, consistency, and accountability of unelected regulators.
Until now, U.S. investors did not have the choice to invest directly in bitcoin through regulated ETFs—a benefit that investors in other countries, such as Canada (surely not the Wild West of finance), have enjoyed for years. Nearly 20 percent of Americans have held cryptocurrency through direct (spot) markets—why not allow them to do so through an SEC-regulated spot markets product?
Resistance to a spot bitcoin ETF reflected the same patronizing merit-regulatory approach that led Massachusetts state securities regulators in 1980 to forbid as “too risky” sales of the initial public offering of Apple Computer Inc. to individuals in Massachusetts. In contrast, the federal securities statutes generally focus on disclosure of material information to let investors decide, rather than substitute bureaucrats’ decision-making for well-informed investor choice. Fortunately, the SEC chairman, cornered by a well-reasoned, adverse court ruling, finally relented.
The SEC’s decision paves the way for individual investors to access bitcoin in a familiar and regulated manner and provides some of the same advantages they enjoy with other more well-established investment products.
Enhanced Accessibility and Simplicity. One immediate benefit of a spot bitcoin ETF product for those interested in investing in bitcoin is accessibility. It demystifies the process of buying bitcoin, especially for those accustomed to traditional investment vehicles. Investors can now participate in the bitcoin spot market through familiar brokerage accounts with regulated custody arrangements. This simplicity is crucial in broadening the understanding of how bitcoin can fit into responsible investment strategies available to the public.
Regulatory Confidence and Reduced Risks. The SEC approval sends a signal that bitcoin ETFs fall within the regulatory framework of other commodity ETFs used by retail investors. At long last, the SEC officially recognizes bitcoin as a commodity, like gold, thus providing regulatory certainty at least for bitcoin, where before there was only a collection of various personal comments by SEC officials. The SEC’s action gives investors the ability to participate within a commodity ETF regulatory framework that has a two-decade track record.
Encouraging Responsible Innovation. Looking beyond bitcoin, for years investors have been confounded that the SEC has refused to devise a new, appropriate policy framework for the trading of digital assets in the United States or to tailor existing, antiquated rules to them. The SEC’s long-delayed approval of spot bitcoin ETFs could and should set the SEC on a trajectory to meaningfully address the regulatory framework for other crypto assets, including reasonable regulatory changes that SEC Commissioner Hester Peirce has advocated. Striking the right balance between innovation and regulation is vital for U.S. leadership of financial markets.
The approval of the first U.S. spot bitcoin ETF is a significant development not just for bitcoin enthusiasts, but for the broader financial community. It enhances accessibility, draws bitcoin under a proven regulatory framework, fosters market stability, offers diversification benefits, and encourages responsible financial innovation.
As we witness the growing convergence of traditional and digital finance, this move marks a critical step in the mainstream acceptance and integration of cryptocurrencies into the global financial system.
