The U.S. Securities and Exchange Commission (SEC) approval of 11 exchange-traded funds (ETFs) that hold Bitcoin on Wednesday is being called an “unprecedented” decision by analysts — one that they say will expand how many people can gain exposure to the cryptocurrency.
The decision meant the ETFs, which included BlackRock’s iShares Bitcoin Trust and Valkyrie Bitcoin Fund, could begin trading Thursday and would likely kick off fierce competition for market share.
Toronto-based Purpose Investments’ chief investment officer Greg Taylor noted that while Bitcoin ETFs have been in Canada for some time — Purpose introduced the world’s first in 2021 — the approval in the U.S. will make it easier for people who want to get exposure to the cryptocurrency, which he said can be tricky to do on your own.
He said having the cryptocurrency on an exchange with regulatory oversight makes its “simpler” for investors.
“I think this is a way better way for investors to get exposure to crypto,” he said in an interview with Global News.
An ETF is a way for people to invest into an asset or collection of assets, like gold, oil or now Bitcoin, without having to actually own the product and can be traded like you would with shares, meaning you can buy and sell them throughout the day.
With Bitcoin trading just below US$47,000 Thursday, ETFs track that price and then gives smaller investors a way into the cryptocurrency.
ETFs aren’t new. Gold ETFs have been around for about 20 years and managing director of Ninepoint Partners digital asset group, Alex Tapscott, said they opened up a whole new market of people who could invest in gold without having to put a gold bar in a security deposit box.
Tapscott went on to say the SEC’s decision may be more significant for the crypto market than even the approval of Canadian ETFs like his company or Purpose Investment’s, saying the sheer size of the market in the U.S. could generate much more activity. He noted the first Bitcoin ETF in Canada gathered about $1 billion in investor interest in about a month, but he expects the U.S. ETFs could gather 10 or even 20 times that amount because of the number of people and investable assets.
“So I think that this is going to be a major watershed event for the asset class and…there’s going to be wide interest from many different kinds of investors for this product,” he told Global News in an interview.
He added that he believed the success of Bitcoin ETFs in Canada helped inspire a lot of filings and applications by U.S. companies, but may have also given regulators “some comfort” that this type of crypto fund can work and would be good for investors.
The cryptocurrency market has not been without controversy, with Taylor previously telling Global News that it had a “pretty big washout” in 2022, with investors cashing out of the asset following its late 2021 run-up.
Over the past few years, crypto saw the folding of numerous exchanges and cryptocurrency tokens, and the high-profile collapse of FTX. That exchange, which was once valued at a peak of US$32 billion and seen as a leader in the industry, was at the centre of a trial of founder Sam Bankman-Fried convicted for defrauding investors.
Tapscott told Global News in November 2023 that in the wake of the collapse, regulators started sharpening their knives with an “aggressive” approach to the sector, further weighing on its growth prospects.
What investors should know before buying
Taylor said Thursday the existing volatility of Bitcoin is still something investors should keep in mind, and the SEC decision is not going to change that, but having a regulator behind the asset can help validate it slightly.
“We’re never going to say anyone should be 100 per cent any asset class,” he said. “And certainly cryptos (is) not one that you or anyone should go all in because of the volatility underlying it. But it is something that people might want to have as a part of their portfolio.”
He also said that while Bitcoin ETFs were now available in the U.S., Canadians should hold off from switching for now and continue to invest in them here in this country. He said this is because with different currencies and different kinds of taxes, it could pose issues for investors north of the border.
Even though the SEC decision is being seen as a big move, it was done reluctantly with the agency saying it was still deeply skeptical about crypto and it did “not approve or endorse bitcoin” in its decision.
While the SEC never endorses anything they approve, Tapscott noted, he said their warning for investors to be aware of the asset class was “a little unusual.”
“Perhaps some people will read that as a warning of caution that they shouldn’t invest in the asset class,” he said. “I think probably it really reflects the fact that the SEC has kind of come into this kicking and screaming, but has accepted the reality and has approved these products.”
What this means for crypto
Longtime proponents of crypto may be wary or even object to the recent SEC decision, in part because the decentralized currency like Bitcoin was created partly due to the mistrust of the financial system. Under the approval, Wall Street will become an intermediary between investors and crypto in the case of ETFs.
As well, some investors also turn to cryptocurrency because of the anonymity it gives — though it may be more difficult to put forward this argument as ETFs don’t provide investors with that anonymity.
Even with this concern, however, Taylor said bringing this type of currency into the “more mainstream” can be a positive.
“I think at the end of the day for the average investor that is something that’s a positive because things got a little out of hand, as we saw with the FTX and some of the exchanges getting around, and it’s nice to have an adult in the room from a regulator,” Taylor said.
“I think this is a further stamp on the road to being validated in something more mainstream, and I think the increased regulation is something that should be welcomed by the crypto community.”
—with files from Global News’ Craig Lord and The Associated Press
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