The United States Securities and Exchange Commission’s approval of the first listed exchange-traded funds to track Bitcoin is an important development for the global crypto market. OLUWAKEMI ABIMBOLA writes on how investors in Nigeria, who are not risk-averse to cryptos, can test the waters via these ETFs
In January, the US Securities and Exchange Commission approved the first US-listed exchange-traded funds to track Bitcoin, a move widely anticipated, and eagerly awaited, by the industry.
Stakeholders in the sector called it a watershed moment for the crypto industry. US SEC making such a bold statement also raised the hope of players that regulators globally may soften their stance on the industry or at the least, give it a second look.
ETFs are exchange-traded funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio, according to financial services company, Charles Schwab.
The chair of the US SEC, Gary Gensler, is considered a fierce critic of cryptocurrencies.
Gensler in his statement on the approval of the ETFs said that while the commission had approved the listing and trading of the crypto ETFs, “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 have said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to federal securities laws.
“Investors today can already buy and sell or otherwise gain exposure to Bitcoin at a number of brokerage houses, through mutual funds, on national securities exchanges, through peer-to-peer payment apps, on non-compliant crypto trading platforms, and, of course, through the Grayscale Bitcoin Trust.”
The US SEC also included certain protections for investors such as sponsors of bitcoin ETPs will be required to provide full, fair, and truthful disclosure about the products; products will be listed and traded on registered national securities exchanges and existing rules and standards of conduct will apply to the purchase and sale of the approved ETPs.
The SEC has approved 11 applications, including from BlackRock, Ark Investments/21Shares, Fidelity, Invesco and VanEck.
According to The Banker, the pan-European trading venue for securities, Spectrum Markets, saw a surge in overnight activity on products linked to bitcoin, in the hours following the SEC’s announcement approving the first spot bitcoin ETF.
The volume of bitcoin-linked instruments traded on Spectrum on the day that the announcement was made was five times higher than the daily average for the preceding three months, with the hours between 22:00 and 23:00 CET accounting for nearly 29 per cent of this activity. Typically, trading on bitcoin-linked instruments during these hours accounts for around eight per cent.
The US SEC specifically stated that the approval of the ETFs does not translate to an approval or endorsement of Bitcoin.
“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,” said the January 10 statement.
The US SEC are not the only one that has not been keen on cryptocurrencies and their effect on the finance industry, the World Federation of Exchanges in its December commentary on the ‘Importance of Exchange Governance to Financial Markets’ supported governments and regulators who are putting in place policies to address concerns in the space.
It said, “The growth of available crypto-related offerings globally, the large inflows into crypto-platform traded products, and the growing investor interest in crypto is impressive. The ‘market capitalisation’ of global cryptocurrency exceeds $1tn. Although the crypto industry remains much smaller than the over $100tn market capitalisation of global equities, its potential size, rapid growth, and eloquent advocates have drawn interest from many directions.
“Less impressive is the number of incidents involving CTPs and Crypto-Asset Service Providers. Not only is the 2022 failure of FTX/Alameda still resonating, but 94 CTPs failed in 2021 alone2 and 42 per cent of failed CTPs since 2014 disappeared without a trace, leaving their investors with little or nothing.
“The WFE supports governments and regulators in subjecting crypto-asset trading platforms to the rules and laws governing exchanges to achieve a technology-neutral approach to regulation. We encourage policymakers to support those CTPs that recognise the benefits to investors of pursuing a regulated approach for this evolving industry.”
Stakeholders in the field have said that the move by the US SEC was a win for the fund managers and the cryptocurrency industry, given nearly two years of turmoil, including the failure of several crypto firms.
A personal finance expert, Solafunmi Oyeneye, speaking on the development said, the move by the US SEC made investing in crypto through the approved ETFs an easy one.
Oyeneye said, “It gives a more mainstream and accessible way for people to invest in the crypto market.
“In the short term, SEC saying a big yes to all the crypto ETFs means more people might, can and will get into the crypto game. This includes folks who usually play it safe. This is because ETFs are regulated by the government, making people feel more secure. This new crowd of investors should push crypto prices higher.”
“In the long term, if these crypto ETFs perform well, they could help make crypto a normal part of the finance world. This means more people will be able to use crypto and they could become more stable and mature in the market. So, for people who fear crypto, ETFs are an excellent way to get involved in crypto,” she said via her official Instagram page, (@wealthmotley).
Soneye added that the ETFs can be subscribed to via popular investment apps.
In Nigeria, the Central Bank of Nigeria, which has maintained a hard stance against cryptocurrency, has lifted the restriction it placed on banks enabling them to provide financial services to crypto businesses in the country in December.
Bitcoin capitalisation stood at more than $2.45tn as of Monday on Coinmarketcap.
