Cryptocurrency ETFs
Court rules in favor of ETF issuers
The U.S. Court of Appeals overturned the earlier decision of the U.S. Securities and Exchange Commission (SEC) on August 29, 2023, paving the way for the first-class Bitcoin spot ETF, spurring Bitcoin to surge.
In June 2022, the SEC rejected the application of cryptocurrency fund provider Grayscale and did not allow it to convert its Bitcoin trust Grayscale Bitcoin Trust (GBTC) into a Bitcoin spot ETF. The SEC believed that Grayscale allowed The plan to list the Bitcoin spot ETF on NYSE Arca, a subsidiary of the New York Stock Exchange, was not enough to avoid fraud and market manipulation. Grayscale subsequently filed a lawsuit against the SEC.
SEC is about to review spot ETFs
In the past two years, the SEC has successively reviewed applications from multiple investment institutions to issue spot ETFs for Bitcoin or other cryptocurrencies. But most of them end without illness, which makes people wonder why.
But the current situation has changed a lot. People in the financial industry, Wall Street, and most issuers themselves judge that the SEC is likely to approve the listing of multiple Bitcoin spot ETFs at the same time before January 10, 2024 at the earliest.
Wall Street’s interest is strong
Fox Business has reported that 13 institutions have applied to issue Bitcoin spot ETFs before the December 29, 2023 deadline.
A huge catalyst
The approval of spot ETFs will become a major catalyst for the cryptocurrency industry and will definitely bring a wave of strong demand. Especially now that even mainstream Wall Street players and global heavyweight index ETF issuers such as BlackRock, Fedelity, and NasDaq have applied to the SEC, this will surely attract a large number of investors to invest in cryptocurrency spot ETFs.
Developments over the past two years
Reasons for the surge in the past six months
If investors pay attention to financial news, it should not be difficult to find that since the second half of 2023, the trading price of cryptocurrency has rebounded significantly from the bottom of the past two years. But what is the reason for the rebound? I personally think there are the following:
- After a deep fall and rebound, Bitcoin made a strong comeback with an increase of more than 160% in 2023, and its market value increased by approximately US$530 billion.
- After more than ten years of promotion, especially the obvious depreciation of legal currencies in various countries due to aggravated inflation, the existence value of cryptocurrencies has been increasingly demonstrated.
- The United States is about to approve the legal issuance of cryptocurrency spot ETFs by investment institutions.
Why authorities change mind?
Of these three reasons, the last one is the most critical. This represents a change in the attitude of regulatory agencies and the public’s acceptance of cryptocurrencies. Pressure from all parties has forced regulatory agencies to relax laws and compromise with the market.
Official successful rectification
On the other hand, in the past two years, regulatory agencies have launched searches, prosecutions, fines and other market rectification measures against illegal cryptocurrency operating companies, which has gradually brought the cryptocurrency industry into the official business direction. This has a great impact on investors. The protection of rights and interests, market rules, and official positions have all undergone healthy evolution.
For this part, investors please refer to the detailed explanation in my previous post: “How do Coinbase and Binance make money? Advantages comparison“.
Current industry alternatives
Cryptocurrency Fund
In 2017, there was actually Bitwise Asset Management, which established the first cryptocurrency index fund to allow investors to invest in emerging digital cryptocurrencies such as Bitcoin in a simpler way without having to invest on their own. Hardware equipment performs “mining”.
Cryptocurrency Trust Management
The current alternative approach in the industry is to adopt an ETF-like approach, in which the cryptocurrencies held by the cryptocurrency trust are managed by the cryptocurrency trust, and the investors reinvest in the investment institutions that hold the cryptocurrency trust management. Grayscale Investments is a representative investment institution engaged in this kind of business. The Grayscale Bitcoin Trust (ticker: GBTC) issued by it is its most famous highly connected related product.
This practice is actually on the edge of the law, and it is difficult for U.S. authorities to supervise it.
Companies’ holding cryptocurrency
There are also investors who have invested in companies that hold cryptocurrency. The main business of such listed companies is not investment institutions. The value of the company comes from the cryptocurrency it holds. One of the most famous companies is MicroStrategy (ticker: MSTR) because it holds a large amount of Bitcoin.
MicroStrategy was founded nearly 35 years ago, and for much of its history it was a little-known software company focused on business intelligence. Unlike its technology peers, which rely on revenue growth or market share growth to drive stock prices, MicroStrategy owes its investor appeal almost entirely to Bitcoin.
The company began buying cryptocurrencies in mid-2020 and is the largest publicly traded company holding Bitcoin in the world. As of the end of 2023, the total number of coins held reached 189,150, with a value of more than 8 billion US dollars. Such holdings approach 1% of the total number of Bitcoins in circulation.
In 2023, the stock surged 335.54%, roughly double Bitcoin’s gain over the same period, making it one of the biggest gains among U.S. companies with a market capitalization of $5 billion or more, outpacing even Nvidia’s 245.94% gain and Meta Platforms Inc.’s 183.76% gain.
Cryptocurrency Futures
In August 2017, Coinbase had been approved to publicly sell cryptocurrency futures in the United States. The news that day caused Coinbase’s share price to rise by 5%. For Coinbase, please see my post “How do Coinbase and Binance make money? Advantages comparison“.
Governance in different countries
Canada has approved
In comparison, Canada has registered and listed three Bitcoin ETFs. Among them, the “Purpose Bitcoin ETF” was launched in February 2021, with an asset size of US$1.51 billion. The other two stocks are “The Evolve Bitcoin ETF” and “CI Galaxy Bitcoin ETF”, which were launched in February and March respectively.
U.S. is about to approve
Only the release date in the United States is missing
According to industry trends and current regulatory statements, the United States has everything ready to approve cryptocurrency ETFs and it is impossible not to approve them. All that is left is the official announcement of the supervisory authority, and ETF issuers can immediately announce their listings. The date is up.
Benefifieary companies
Cryptocurrency traders
Among them are Coinbase, the largest cryptocurrency trader in the United States, Binance, the largest cryptocurrency trader in the world (please refer to my previous post “How do Coinbase and Binance make money? Advantages comparison“), and financial technology companies Block (ticker: SQ) and PayPal (ticker: PYPL) are the most representative. Readers can refer to the three posts I wrote about these four companies before: “Incredible Bitcoin fanatical supporter, Jack Dorsey“, “PayPal to buy cryptocurrencies is it not a good idea“, and “You should know the company Square (rebraned to Block)“.
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Cryptocurrency miners
Riot Platforms (ticker: RIOT) and Marathon Digital (ticker: MARA) are the representatives. Bitcoin will rise 150% in 2023, but Marathon Digital and Riot Platforms stocks will perform significantly better than Bitcoin in 2023. These two stocks have increased by more than 590.85%and 359.05% respectively in 2023.
ETF issuers
BlackRock (ticker: BLK) is the most important representative because it is the largest issuer of index ETFs in the world.
Postscript
The U.S. Securities and Exchange Commission voted on January 10, 2024 to approve 11 Bitcoin ETF applications, ending months of negotiations with top asset management companies, including BlackRock, Ark Capital ( Ark) Investments
Related articles
- “Cryptocurrency ETFs drive surge in related companies“
- “Enlightenment of Bitcoin reaching new heights“
- “Bitcoin ETF spot trading approval has far-reaching impact“
- “Investing in cryptocurrency is not as good as investing in related companies“
- “Incredible Bitcoin fanatical supporter, Jack Dorsey“
- “PayPal to buy cryptocurrencies is it not a good idea“
- “You should know the company Square (rebraned to Block)“
- “How do Coinbase and Binance make money? Advantages comparison“
- “How does BlackRock, the world’s largest index and asset management company, make money?”
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