Listen to the Article: SEC Says Yes to Spot BTC ETF, But Not Everyone Is Happy

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On January 10, Fazzaco learned that the U.S. Securities and Exchange Commission (SEC) approved the first U.S.-listed exchange traded funds (ETFs) to track bitcoin​, in a watershed for the world's largest cryptocurrency and the broader crypto industry.

The approval of spot BTC ETFs has been a long-awaited breakthrough, after a decade of regulatory hurdles. So, what does this approval mean for the crypto community? Why did the regulator give the green light this time? And what are the mixed feelings in the crypto community?

What is BTC ETF?

ETF stands for exchange-traded fund. First, let's talk about funds, which are investment instruments that aim to simplify the process for individual traders. With the help of fund managers, they save traders a lot of time, reduce risks, but they also imply limited trading freedom.

Therefore, the advent of ETFs allows funds to be traded freely on trading venues like stocks. BTC ETF, an ETF based on the token, is equivalent to indirectly buying BTCs. Traders now are able to track the token's movement without having to actually own it, but they get to share the same level of P/L. In addition, ETFs eliminate the risk of bitcoins being stolen by hackers, and there is no need to worry about where to store them.

The Ins and Outs of Spot BTC ETF Approval

As a low-risk and high-return instrument, it is only natural for BTC ETFs to gain popularity among traders. Nevertheless, all previous spot ETF approval attempts failed, and the SEC rejected them for fear that they would lead to market manipulation and fraud.

In 2021, the SEC approved the trading of BTC futures ETFs, and said that the likelihood of manipulation of futures products is lower, because their prices are based on the futures prices of CME, which is a CFTC-regulated exchange. So, after the futures ETFs were approved, the reason that the regulator rejected the spot ETFs was then challenged by the market, because the logic of approving the futures should be the just as applicable to the spot. This argument was also supported by the U.S. Federal Court in the Grayscale Investments v. SEC case. In the October 2023 ruling, the Federal Court of Appeals, overruling the SEC's opposition, officially announced that Grayscale Investments had won the bid to create an exchange-traded fund (ETF) based on bitcoin.

SEC States Their View of the Status of Crypto Assets Under the Securities Laws Stays Unchanged

Although the SEC finally gave the green light to the spot BTC ETFs, its chair, Gary Gensler, still revealed some "reluctance" in a statement issued on January 10.

"Importantly," the statement published on the regulator's website says, "today's Commission action (approval of BTC ETF) is cabined to ETPs (ETP means Exchange-Traded Products, and ETFs are the most common type of ETPs) holding one non-security commodity, bitcoin. 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. As I've said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws."

The Contradictory Mentality of the Crypto Community

The crypto community showed mixed feelings about the SEC's approval of the spot BTC ETFs. On the one hand, the digital asset industry has always craved for the acceptance of traditional regulatory agencies, but on the other hand, they are worried that after being incorporated in the traditional financial regulatory system, the "decentralized" nature, a symbol of rebel, of cryptocurrencies will be compromised.

The reason why so many crypto advocates support the tokens is because they do not depend on traditional banks and are independent of any country. But the new spot ETFs will inevitably reconnect bitcoin with Wall Street's traditional financial (TradFin) system and the US Dollar.

On January 17, the Wall Street Journal published an article stating that ETFs may undermine the true purpose of cryptocurrencies and damage their long-term value. Bitcoin has been widely criticized for its cumbersome payment process and low acceptance, and after the spot BTC ETFs become compliant, it will ultimately result in more and more bitcoins held by ETFs, and the number held by actual users will decrease.