After months of application revisions, bilateral meetings and media speculations, the first Spot Bitcoin ETF in the U.S. is finally approved by the SEC. Here’s how the landmark approval relates to public expectations.

On Jan.10, the U.S. Securities and Exchange Commission (SEC) officially approved the first regulated spot Bitcoin exchange-traded funds (ETFs) in the United States.

Among the first Spot BTC ETF offerings able to be listed on U.S. exchanges are investment products from ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree, Fidelity, Valkyrie, BlackRock, Grayscale, Bitwise, Hashdex and Franklin Templeton.

Spot Bitcoin ETFs allow investors to have direct exposure to the price of Bitcoin without actually buying it or dealing with self-custody. U.S. investors can now buy shares in ETFs holding Bitcoin as its underlying asset instead.

In their final amended S-1 and S-3 filings, the firms that would list their Spot Bitcoin ETFs in the near future announced the fees they intend to charge for the given investments. These are as follows:

• BlackRock – 0.2% fees until the fund reaches $5 billion in assets under management (AUM);
• Bitwise – 0.24%. The firm also promised to donate 10% of the profits of the Bitwise Bitcoin ETF to Bitcoin open-source development;
• Ark 21Shares and VanEck – a fee of 0.25%. At the same time, Ark 21 Shares will waive all fees for the first six months or until the product reaches $1 billion AUM, while VanEck plans to donate 5% of ETF profits to Bitcoin developers;
• Grayscale plans to levy a 1.5% fee.

History of Long-Awaited Approval

The main condition that enabled the market players to offer their spot Bitcoin ETF products on national exchanges is the justification of surveillance-sharing agreements with CME — a U.S.-regulated market whose bitcoin futures market is consistently highly correlated to spot bitcoin.

The ETF approval came more than 10 years after the first Spot Bitcoin ETF request was denied. Over this decade, numerous applications failed or were revised multiple times. However, a landmark court case overturned the SEC’s denial to convert the Grayscale Bitcoin Trust into a Spot Bitcoin ETF in August 2023.

Since that time, many discussions have been held between the regulator and the prospective crypto ETF providers. Finally, by late 2023, it became evident that Spot Bitcoin ETF is inevitable. The SEC announced a Dec. 29 update deadline for potential spot Bitcoin ETF providers that wish to receive their approvals in early January. Apparently, at least 11 firms were able to meet the regulator’s demand on time.

The official announcement arrived just one day after a fake notice posted from the SEC’s official Twitter account hit many media headlines. The regulator claims to investigate the incident with the “compromised” tweet jointly with the Federal Bureau of Investigation (FBI).

Criticism

Both before and after the official Spot Bitcoin Approval was published it faced a lot of criticism. Commissioner Caroline A. Crenshaw, one of the commissioners who voted against the approval, has called the SEC’s decision “unsound and ahistorical”. She “strongly disagrees” with the statement that the approved proposals are consistent with the Exchange Act regarding measures sufficient to “prevent fraudulent and manipulative acts and practices”. therefore, the Commissioner dissents from the given Order.

Adressing the concerns of all those who mention crypto market volatility as the main argument against Spot Bitcoin ETFs, the SEC Chair Gary Gensler has reminded that his agency still doesn’t support Bitcoin as a digital asset.

“It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities. Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws.”

Along with numerous critical comments from Bitcoin opponents, some crypto enthusiasts were also not happy with the SEC order. For instance, crypto researcher and advocate Chris Blec noted that institution-driven Bitcoin ETFs would ultimately be detrimental to the decentralized nature of the Bitcoin network per se.

SEC Commissioner Mark Uyeda, who voted in favour of the landmark approvals of the Bitcoin ETF applications, also published a statement revealing “strong concerns” with three aspects of the approval order. Namely, he states that:

1. “The Approval Order improperly attempts to validate the application of the “significant size” test to spot bitcoin ETPs that was struck down by judicial review.
2. The Approval Order invents a novel, previously unarticulated standard to form the basis for approval.
3. The Approval Order disguises the Commission’s motivation for accelerating the approval of the applications, which is to prevent a first-mover advantage among spot bitcoin ETPs.”

The Commissioner is worried that the SEC’s “rationale and legal analysis in the Approval Order may serve as precedent for future matters.” According to him, the main flaw is that the regulator didn’t grab the opportunity to treat Bitcoin like any other commodity. Instead, the commission made an exception for the Bitcoin ETFs after they failed to satisfy the novel “significant size” test.

Uyeda notes that “the Commission has never provided an explanation for this standard and appears to have acted in an arbitrary and capricious manner in using it to disapprove prior spot bitcoin ETP applications.” He adds that the approval order doesn’t explain why the Commission treats spot Bitcoin ETPs differently than Bitcoin futures ETPs under the “significant market” test or why they haven’t been approved long ago.

Finally, Uyeda pointed out the lack of analysis on how the cash-only creation and redemption feature could prevent fraud. Although the Commissioner did support the approval decision itself, he believes such orders must provide transparency in their analysis and reasoning to avoid regulatory issues in the future.