While the chair of the regulator was careful to stress the risks of bitcoin and the wider sector, the approval of exchange-traded funds linked to the crypto is a big step in the road towards "normalization" of these entities.

As widely predicted, the US Securities and Exchange Commission has given the green light to trading and listing spot bitcoin exchange-traded funds. Even so, the regulator’s chair warned about the risks of bitcoin.

Bitcoin rose above $47,000 briefly today but later eased back below that level. Exactly 12 months ago, the crypto fetched $17,936.

Interrupted by what turned out to be a fake social media posting, expectations that the watchdog would approve this move helped to buoy the cryptocurrency in recent weeks, adding to a rally that saw it surge over the past 12 months. 

But the SEC isn’t celebrating the move.

“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” Gary Gensler, SEC chair, said in a statement yesterday. 

“I have often said that the Commission acts within the law and how the courts interpret the law. Beginning under chair Jay Clayton in 2018 and through March 2023, the Commission disapproved more than 20 exchange rule filings for spot bitcoin ETPs. One of those filings, made by Grayscale, contemplated the conversion of the Grayscale Bitcoin Trust into an ETP,” Gensler said.

“We are now faced with a new set of filings similar to those we have disapproved in the past. Circumstances, however, have changed,” he said, going on to explain why the regulator thinks it is now appropriate to approve the listing and trading of certain ETFs. 

Already, investment managers such as BlackRock, VanEck, Bitwise, and others, have unveiled the fees they plan to charge for their proposed spot bitcoin exchange-traded funds. The move comes as regulators around the world wrestle with how to handle bitcoin and digital assets more broadly. In Switzerland, to give one example, there are concerns about how bank regulations could affect one of the more vigorous jurisdictions in the space. Regulators are trying to juggle encouraging innovation and investment into new tech with concerns that cryptocurrencies can cause instability and be a conduit for illicit money.

That said, the market has been supported by expectations that US interest rates may have peaked, lingering concerns about inflation, and the fact that bitcoin is showing a base of resilience even after market reverses. 

In his statement, Gensler noted that the US Court of Appeals for the District of Columbia held that the SEC hadn’t adequately explained its reasoning in disapproving the listing and trading of Grayscale’s proposed ETP. 

“Based on these circumstances and those discussed more fully in the approval order, I feel the most sustainable path forward is to approve the listing and trading of these spot bitcoin ETP shares,” Gensler said.

“Importantly, today’s Commission action is cabined to 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,” Gensler said. “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.”