What is Bitcoin ETF, and which companies received SEC approval?

Discover the world of Bitcoin ETFs, examining their benefits, drawbacks, and key players that received the green light from the SEC.

Bitcoin ETF explained

What is Bitcoin ETF? Bitcoin exchange-traded funds (ETFs), often referred to as BTC ETFs, are investment vehicles that offer a streamlined approach for investors looking to gain exposure to Bitcoin.

The mechanism of BTC ETFs centers around the principle of tracking either the direct Bitcoin price or the performance of Bitcoin-related assets.

How does a Bitcoin ETF work? The fund manager maintains a reserve of Bitcoin, against which investors can purchase shares or units of the ETF. The value of these shares is intrinsically tied to the current market price of Bitcoin. As the value of Bitcoin experiences ups and downs, the worth of the ETF shares adjusts in tandem.

Why Bitcoin ETFs are important?

There are several reasons why Bitcoin spot ETFs play an important role in the crypto ecosystem.

Accessibility

BTC ETFs make it easier for mainstream investors to gain exposure to Bitcoin. Traditional investment vehicles, like futures contracts or buying and holding Bitcoin directly, may be complex or less accessible to certain investors.

ETFs provide a familiar investment structure, regulated and traded on established exchanges.

Risk diversification

By investing in a BTC spot ETF, investors can diversify their cryptocurrency exposure without the need to hold and manage Bitcoin directly. The fund manager spreads the investment across multiple Bitcoin holdings and related assets, potentially reducing the risk associated with a single investment.

Regulatory oversight

BTC ETFs are subject to regulatory oversight by financial authorities, which can provide investors with security. ETFs must meet certain regulatory requirements, such as transparency, reporting, and custody standards, which can help protect investors’ interests.

Liquidity

BTC ETFs are traded on established exchanges, making buying and selling shares easier. This liquidity enhances market efficiency and allows investors to enter or exit their positions more quickly than other Bitcoin investment methods.

Institutional adoption

The introduction of BTC ETFs can potentially attract institutional investors, such as pension funds, mutual funds, and other large financial institutions. These institutional investors often have regulatory or investment restrictions that prevent them from directly investing in cryptocurrencies. The availability of BTC ETFs can provide a bridge for these institutional investors to access the Bitcoin market indirectly.

SEC finally approves spot Bitcoin ETFs

After a long period of consideration and previous denials, the U.S. Securities and Exchange Commission (SEC) has officially approved the applications for 11 spot Bitcoin ETFs.

The approved ETFs include those from major financial players such as BlackRock, Grayscale, ARK 21Shares, Bitwise, WisdomTree, Fidelity, VanEck, Invesco Galaxy, Valkyrie, Hashdex, and Franklin Templeton.

These ETFs offer varied fee structures, some even providing introductory fee waivers. Following the SEC's approval, Bitcoin's price experienced a modest increase.

The SEC's approval process was not without drama. On Jan. 9, there was a premature announcement on the SEC's official Twitter account about the approval of these ETFs, which led to significant market reactions.

However, this announcement was later declared unauthorized due to a security compromise of the SEC's Twitter account. The official approval was confirmed on Jan. 10.

The journey to this approval has been a long one, with the first application for a spot #Bitcoin ETF filed over a decade ago.

The #SEC had consistently denied such requests, citing concerns over market manipulation and fraud. However, a court ruling in favor of Grayscale in a related case in August 2023 forced the SEC to revisit its stance, leading to the current approvals.

These approvals, however, are specific to Bitcoin and do not indicate the SEC's stance on other cryptocurrencies or crypto assets securities.

Rejected Bitcoin ETFs from the past

The Winklevoss Bitcoin Trust: an unsuccessful pioneer

Initiated in July 2013 by Cameron and Tyler Winklevoss, the Winklevoss Bitcoin Trust was a pioneering effort in the Bitcoin ETF space. However, the SEC rejected this proposal in March 2017.

In 2018, the SEC rejected the Winklevoss brothers’ second attempt to launch the first-ever Bitcoin ETF. The commission cited concerns about fraud, manipulation, and investor protection. The Winklevoss brothers argued for the resistance of Bitcoin markets to manipulation, but the SEC found no supporting evidence.

Grayscale’s unconventional route

In July 2017, Grayscale, another significant player, filed an application for its Grayscale Bitcoin Trust (GBTC). Rather than awaiting SEC approval, Grayscale listed its fund on the over-the-counter (OTC) market, thus bypassing the rigorous SEC approval process.

Though a request by Grayscale Investments to turn Grayscale Bitcoin Trust into an ETF was initially rejected by the SEC, in October 2023, a panel of judges on the U.S. Court of Appeals unanimously ruled that the financial regulator had made an error in their decision. A few days later, it was confirmed that the SEC would not be pursuing an appeal of the court’s decision, leading many analysts to assume that the Grayscale’s transition would be approved, which would likely open the floodgates for other firms’ Bitcoin ETF proposals.

ProShares: a double blow

ProShares entered the fray in September 2017, filing applications for two Bitcoin ETFs — the ProShares Bitcoin ETF and the ProShares Short Bitcoin ETF. However, both faced rejection in August 2018. The SEC cited concerns over potential market manipulation and insufficient investor protection measures.

Bitwise and Realty Shares

Bitwise proposed the Bitwise Bitcoin ETF Trust in January 2019, only to have it rejected about nine months later. Shortly after, in February 2019, Realty Shares ETF Trust proposed a Bitcoin fund that was withdrawn two days later.

WisdomTree

January 2022 saw WisdomTree bring innovation as it applied for a BTC ETF. The SEC rejected this proposal in October 2022, expressing that it did not protect against potential fraudulent and manipulative practices, nor did it serve the public interest.

Companies who got a green light for their Bitcoin ETF

Grayscale

Grayscale's Bitcoin Trust (#GBTC), boasting an impressive $29 billion in assets under management (AUM), has now solidified its status in the crypto market, especially with the latest approvals around spot Bitcoin ETFs.

As of Jan. 2024, GBTC has a substantial holding of over 619,000 BTC, underlining its significant presence in the crypto sphere.

The proposed fee structure for converting GBTC into an ETF stands at 1.5%, which is relatively high compared to its competitors.

However, #Grayscale's dominance in the market, coupled with its high trading volumes, might make these fees more acceptable to investors.

Ark 21Shares

The Ark 21Shares Bitcoin ETF, known as #ARKB, is a spot BTC ETF product resulting from the collaboration between Ark Invest, led by the well-known investor Cathie Wood, and 21Shares, boasting nearly $9 billion in AUM.

In anticipation of this approval, #Cathie Wood's Ark Invest made strategic financial moves in late 2023, including the notable sale of a significant portion of their Coinbase shares.

The ARKB offers a fee structure of 0.25%, a rate that could stand out in the market for its affordability compared to many similar offerings.

Additionally, in a strategic move to attract market share and capture investor interest, #Ark Invest and 21Shares have implemented an aggressive fee-waiver policy.

They have decided to waive all fees for the initial six months or until the ETF accumulates its first $1 billion in assets, a decision that could significantly boost its early adoption and attractiveness to investors.

Bitwise

The #Bitwise Bitcoin ETF, known as #BITB, has a fee rate of 0.24%, distinguishing it in terms of cost-effectiveness compared to the average U.S. ETF products.

According to an earlier tweet, Bitwise has demonstrated its confidence in the venture by seeding its spot Bitcoin ETF with $200 million, which significantly exceeds Blackrock’s initial $10 million investment in its Bitcoin ETF.

BlackRock

The #BlackRock Bitcoin ETF, known as the iShares Bitcoin Trust and marked with the ticker #IBIT, has been officially launched and began trading on Nasdaq.

Initially, the fee for the ETF is set at 0.20%, offering an attractive entry point for investors. However, this fee is scheduled to rise to 0.30% once the fund exceeds $5 billion in AUM within its first year.

This ETF is part of BlackRock's broad range of investment solutions. With over two decades of experience in the ETF market, BlackRock's iShares has over several hundred ETFs globally and manages assets of over $9 trillion as of Jan. 2024.

When BlackRock filed for the iShares Bitcoin Trust in June 2023, it caused a strong surge in Bitcoin's price, indicative of its influence in the crypto market.

VanEck

#VanEck, a well-established asset management firm, filed its fifth amended application for a spot Bitcoin Exchange-Traded Fund (ETF) in Dec. 2023 and got approval from the SEC on Jan. 10. This ETF is proposed to be listed under the ticker symbol “HODL” and will incur a fee of 0.25%.

As of Sep. 2023, VanEck boasted an impressive $76 billion in AUM, positioning it as a giant entity in the financial markets.

VanEck’s involvement in the ETF space is part of a larger trend of traditional financial institutions entering the crypto market, bringing with them a blend of expertise in financial management and an understanding of the emerging crypto market.

WisdomTree

New York-based asset manager #WisdomTree, which had over $100 billion of assets under AUM as of Dec. 2023, was also one of the BTC ETF applications that gained SEC’s approval.

WisdomTree has set the expense ratio for its ETF at 0.5%, and its ETF will trade under the ticker BTCW on the CBOE Exchange.

Before the official regulatory approval on Jan. 10, WisdomTree listed its spot Bitcoin ETF on the Depository Trust & Clearing Corporation (DTCC) website.

The proposed WisdomTree Bitcoin Trust aims to trade on the #BZX Exchange, with #Coinbase Custody Trust appointed as the custodian.

This arrangement would see Coinbase Custody Trust handling the responsibility for all the trust's Bitcoin assets, ensuring security and regulatory compliance.

Invesco

The Invesco Galaxy Bitcoin ETF is a collaboration between the established asset management company Invesco and the blockchain platform Galaxy. This ETF, known by its ticker #BTCO, has already commenced trading on the #CBOE exchange.

Invesco, a giant in the traditional financial market with over $1.5 trillion in AUM, in collaboration with Galaxy, has planned a fee structure for BTCO, which is unique among its peers.

Initially, they will waive the management fee entirely for the first six months or until the fund reaches its first $5 billion in assets. After this period, the fee will be set at 0.59%, which is on the higher side compared to other Bitcoin ETFs.

This fee waiver strategy could be an intriguing approach by Invesco and could play a key role in attracting early investors to the fund, considering it already has a strong foothold in the traditional financial markets.

Fidelity

With over $4.4 trillion in AUM, #Fidelity Investments has also joined the ranks of approved entities by the SEC, giving Fidelity an early-mover advantage in the spot BTC ETF race.

In late 2023, Fidelity filed form S-1 with the SEC to offer shares of the Fidelity Wise Origin Bitcoin Fund through the CBOE Exchange under the ticker #FBTC.

In terms of the fee structure, Fidelity plans to charge a management fee of 0.39% per year to holders of its Wise Origin Bitcoin Trust.

Valkyrie

The Valkyrie Bitcoin ETF, trading under the symbol "#BRRR" has joined the approved Bitcoin ETF roster, with NASDAQ as its trading platform. Regarding its fee structure, the Valkyrie Bitcoin ETF has set its management fee at 0.80%.

As of February 2022, Valkyrie reportedly had over $1 billion in assets under management (AUM), reflecting a strong market presence and investor trust in its financial products.

The "BRRR" ETF is Valkyrie’s second attempt at launching a spot Bitcoin ETF in the U.S.. Their previous attempt to list the Valkyrie Bitcoin Trust on the New York Stock Exchange faced regulatory challenges from the SEC, but #Valkyrie successfully launched a futures-based Bitcoin ETF in October 2021.

Franklin

#Franklin Templeton is a global investment powerhouse with a rich history in asset management.

Scheduled to trade soon, the ETF, trading under the ticker #EZBC, is set to bolster Franklin's diverse portfolio offerings beyond stocks and commodities.

With an AUM exceeding $1.4 trillion, the company has outlined a fee structure of 0.35%, aligning with industry standards for competitive pricing.

Hashdex Bitcoin ETF (DEFI)

The #Hashdex BTC ETF is the final name in the list of SEC-approved Bitcoin ETFs. It will be traded on the NYSE under the ticker symbol "#DEFI" and comes with an expense ratio of 0.9%.

According to the latest data, Hashdex has amassed nearly $600 million in AUM worldwide and has offices in the U.S., Brazil, and Europe, and boasts a client base of over 215,000 investors.As of Dec. 2023, Hashdex held more than 80% of the total market share by AUM for Crypto ETFs in Brazil.

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