How Will It Shape Crypto Now?

With SEC’s approval confirmed, spot Bitcoin ETFs are officially set to launch, marking what some commentators believe is a turning point in Bitcoin’s history. Whatever events unfold from here, it’s worth considering why now is the right time for ETFs to get the green light, and how Bitcoin and the wider crypto industry may be affected from here.

Why Are ETFs Happening Now?

The first ever application for a bitcoin ETF was from the Winklevoss brothers, back in 2013 when BTC was trading below $100, and subsequent to that, there have been multiple further attempts, from the likes of Gemini (founded by the Winklevoss brothers), Ark Invest and Grayscale. None were accepted, and the SEC appeared intransigent.

What’s more, the SEC’s refusal to budge came as Bitcoin futures ETFs gained approval, and while spot Bitcoin ETFs were launched in other countries, including Canada and Australia.

All of which might lead one to ask what happened over the past year to cause BlackRock, one of the most influential financial firms in the world, to believe it was worth moving forwards with Bitcoin ETF plans, and why BlackRock and its Chairman and CEO, Larry Fink, suddenly displayed such enthusiasm for crypto anyway, after years of indifference.

Flashback to 6 years ago: This is what an ETF rejection looked like.#BTC #ETF #CryptoHistory #Throwback #BitcoinETF pic.twitter.com/PJSYOiiMvI

— Crypto Patel (@CryptoPatel) December 29, 2023

Did the Courts Force the SEC to Alter Course?

In the SEC’s case against Grayscale, the courts determined, last August, that the regulator had acted in an “arbitrary and capricious” way in denying Grayscale’s application to convert its Bitcoin Trust into a spot Bitcoin ETF, with the regulator previously having approved other, futures-based Bitcoin products.

This appears to have been a critical decision, apparently leaving the SEC with the option of opening the gates for multiple spot ETFs, or reversing course on futures ETFs and inviting legal action, in the knowledge that legal decisions were already not going its way.

Furthermore, while not directly related to ETFs, the SEC faced legal setbacks against Ripple three times in 2023. These setbacks included rulings that XRP, as traded on secondary markets, is not a security, the Commission being denied an interlocutory appeal, and all charges being dropped against Brad Garlinghouse, Ripple’s CEO, and Chris Larsen, the Co-Founder of Ripple. When those charges were dropped, Ripple’s CLO, Stuart Alderoty, even characterized it as “a surrender by the SEC.”

Then in mid-December, there was a revealing quote from the SEC’s Chair, Gary Gensler, when he stated in a CNBC interview, referring to spot BTC ETF applications: “We had in the past denied a number of these applications, but the courts here in the District of Columbia weighed in on that. And so we’re taking a new look at this based upon those court rulings.”

Although Gensler didn’t directly reference Grayscale, that case was heard in the District of Columbia Court of Appeals. It looks as though it’s the courts that are forcing the SEC to alter its approach, and so ultimately, it’s the crypto firms willing to take on the SEC in court (Ripple and Grayscale, notably) that have forced the SEC’s hand.

Has Bitcoin Grown Too Large to Ignore?

Bitcoin has grown, in the space of fifteen years, from a digital experiment that traded almost for free, to an asset whose coins are currently valued at over $45,000 each, with a market cap of almost $840 billion. And what’s more, this is despite being sidelined by traditional finance and requiring new adopters to make unusual efforts to acquire the asset.

Multiple declarations from legacy media commentators over the years to the effect that Bitcoin has run its course or is finally dead have been repeatedly inaccurate, and whatever obstacle or initiator of market fear has been placed in its path (from Chinese bans to Tesla offloading half its holdings), Bitcoin has marched on regardless. Or as long-term holders with remarkable conviction like to put it: tick tock, next block.

Born to Bitcoin. 🧡 pic.twitter.com/qYI3bmZDvC

— VanEck (@vaneck_us) December 29, 2023

Is a Generational Shift Occurring?

Adding to the sense that Bitcoin and crypto are here to stay, there may be a generational shift taking place; a change which comes with an attendant transfer of wealth. This proposed occurrence, explained in detail by Cerulli Associates in 2022, means $84 trillion is expected to pass from the Baby Boomer and Silent generations, to younger generations, and also charities, by 2045.

And, this relates directly to Bitcoin and other cryptocurrencies because it’s younger generations, primarily, that are leading the adoption of crypto, suggesting that traditional financial institutions will be increasingly motivated to pivot towards digital assets, and will do so naturally as younger generations exert greater influence over corporate decision making.

How Does a Spot BTC ETF Change the Crypto Landscape?

A spot BTC ETF, particularly when managed by a firm as large and reputable as BlackRock, legitimizes BTC for traditional investors, and acts as an institutional stamp of approval. This shift is enhanced by incoming changes to FASB fair value accounting rules for corporations, which will make it more viable for corporations to hold BTC on their balance sheets.

ETFs provide an avenue for investors who may not be inclined to delve into the technical, economic and even philosophical discussions surrounding Bitcoin. They may not be interested in learning about self-custody, but simply recognize Bitcoin as a valuable addition to a diverse portfolio. These investors seek exposure with as little friction as possible.

What’s more, from a trading psychology perspective, an ETF removes unit bias: markets are not perfectly rational, and holding multiple shares in an ETF may seem more appealing than holding a fraction of a bitcoin.

How Is the ETF Being Received by Crypto Natives?

Within crypto, there is a firm belief in the mechanism referred to tongue-in-cheek as the value increases. This means, very simply, that nothing attracts people to Bitcoin more than the sight of the price rising. So, if you’re an advocate of the transformative power of crypto, then you welcome newcomers even if they’re only visiting in the hope of short-term gains, since some proportion of them will deepen their crypto knowledge and choose to stick around for the long-term.

By that token, if an ETF leads to increased investments and a sustained rise in price over the long term, then it should be welcomed. A counter argument is that by removing the self-custody elements of BTC, an ETF reduces the likelihood of what might be called true adoption. Nevertheless, the benefits, such as legitimizing crypto, and increased funding, are likely to outweigh any concerns about straying from the founding principles.

However, spot BTC ETFs are far from a silver bullet for the whole crypto industry, as from a development and adoption point of view, the US would still benefit from new crypto legislation and greater regulatory certainty. That said though, the approval of the ETF signals a potential landmark shift in attitudes towards Bitcoin.

With SEC’s approval confirmed, spot Bitcoin ETFs are officially set to launch, marking what some commentators believe is a turning point in Bitcoin’s history. Whatever events unfold from here, it’s worth considering why now is the right time for ETFs to get the green light, and how Bitcoin and the wider crypto industry may be affected from here.

Why Are ETFs Happening Now?

The first ever application for a bitcoin ETF was from the Winklevoss brothers, back in 2013 when BTC was trading below $100, and subsequent to that, there have been multiple further attempts, from the likes of Gemini (founded by the Winklevoss brothers), Ark Invest and Grayscale. None were accepted, and the SEC appeared intransigent.

What’s more, the SEC’s refusal to budge came as Bitcoin futures ETFs gained approval, and while spot Bitcoin ETFs were launched in other countries, including Canada and Australia.

All of which might lead one to ask what happened over the past year to cause BlackRock, one of the most influential financial firms in the world, to believe it was worth moving forwards with Bitcoin ETF plans, and why BlackRock and its Chairman and CEO, Larry Fink, suddenly displayed such enthusiasm for crypto anyway, after years of indifference.

Flashback to 6 years ago: This is what an ETF rejection looked like.#BTC #ETF #CryptoHistory #Throwback #BitcoinETF pic.twitter.com/PJSYOiiMvI

— Crypto Patel (@CryptoPatel) December 29, 2023

Did the Courts Force the SEC to Alter Course?

In the SEC’s case against Grayscale, the courts determined, last August, that the regulator had acted in an “arbitrary and capricious” way in denying Grayscale’s application to convert its Bitcoin Trust into a spot Bitcoin ETF, with the regulator previously having approved other, futures-based Bitcoin products.

This appears to have been a critical decision, apparently leaving the SEC with the option of opening the gates for multiple spot ETFs, or reversing course on futures ETFs and inviting legal action, in the knowledge that legal decisions were already not going its way.

Furthermore, while not directly related to ETFs, the SEC faced legal setbacks against Ripple three times in 2023. These setbacks included rulings that XRP, as traded on secondary markets, is not a security, the Commission being denied an interlocutory appeal, and all charges being dropped against Brad Garlinghouse, Ripple’s CEO, and Chris Larsen, the Co-Founder of Ripple. When those charges were dropped, Ripple’s CLO, Stuart Alderoty, even characterized it as “a surrender by the SEC.”

Then in mid-December, there was a revealing quote from the SEC’s Chair, Gary Gensler, when he stated in a CNBC interview, referring to spot BTC ETF applications: “We had in the past denied a number of these applications, but the courts here in the District of Columbia weighed in on that. And so we’re taking a new look at this based upon those court rulings.”

Although Gensler didn’t directly reference Grayscale, that case was heard in the District of Columbia Court of Appeals. It looks as though it’s the courts that are forcing the SEC to alter its approach, and so ultimately, it’s the crypto firms willing to take on the SEC in court (Ripple and Grayscale, notably) that have forced the SEC’s hand.

Has Bitcoin Grown Too Large to Ignore?

Bitcoin has grown, in the space of fifteen years, from a digital experiment that traded almost for free, to an asset whose coins are currently valued at over $45,000 each, with a market cap of almost $840 billion. And what’s more, this is despite being sidelined by traditional finance and requiring new adopters to make unusual efforts to acquire the asset.

Multiple declarations from legacy media commentators over the years to the effect that Bitcoin has run its course or is finally dead have been repeatedly inaccurate, and whatever obstacle or initiator of market fear has been placed in its path (from Chinese bans to Tesla offloading half its holdings), Bitcoin has marched on regardless. Or as long-term holders with remarkable conviction like to put it: tick tock, next block.

Born to Bitcoin. 🧡 pic.twitter.com/qYI3bmZDvC

— VanEck (@vaneck_us) December 29, 2023

Is a Generational Shift Occurring?

Adding to the sense that Bitcoin and crypto are here to stay, there may be a generational shift taking place; a change which comes with an attendant transfer of wealth. This proposed occurrence, explained in detail by Cerulli Associates in 2022, means $84 trillion is expected to pass from the Baby Boomer and Silent generations, to younger generations, and also charities, by 2045.

And, this relates directly to Bitcoin and other cryptocurrencies because it’s younger generations, primarily, that are leading the adoption of crypto, suggesting that traditional financial institutions will be increasingly motivated to pivot towards digital assets, and will do so naturally as younger generations exert greater influence over corporate decision making.

How Does a Spot BTC ETF Change the Crypto Landscape?

A spot BTC ETF, particularly when managed by a firm as large and reputable as BlackRock, legitimizes BTC for traditional investors, and acts as an institutional stamp of approval. This shift is enhanced by incoming changes to FASB fair value accounting rules for corporations, which will make it more viable for corporations to hold BTC on their balance sheets.

ETFs provide an avenue for investors who may not be inclined to delve into the technical, economic and even philosophical discussions surrounding Bitcoin. They may not be interested in learning about self-custody, but simply recognize Bitcoin as a valuable addition to a diverse portfolio. These investors seek exposure with as little friction as possible.

What’s more, from a trading psychology perspective, an ETF removes unit bias: markets are not perfectly rational, and holding multiple shares in an ETF may seem more appealing than holding a fraction of a bitcoin.

How Is the ETF Being Received by Crypto Natives?

Within crypto, there is a firm belief in the mechanism referred to tongue-in-cheek as the value increases. This means, very simply, that nothing attracts people to Bitcoin more than the sight of the price rising. So, if you’re an advocate of the transformative power of crypto, then you welcome newcomers even if they’re only visiting in the hope of short-term gains, since some proportion of them will deepen their crypto knowledge and choose to stick around for the long-term.

By that token, if an ETF leads to increased investments and a sustained rise in price over the long term, then it should be welcomed. A counter argument is that by removing the self-custody elements of BTC, an ETF reduces the likelihood of what might be called true adoption. Nevertheless, the benefits, such as legitimizing crypto, and increased funding, are likely to outweigh any concerns about straying from the founding principles.

However, spot BTC ETFs are far from a silver bullet for the whole crypto industry, as from a development and adoption point of view, the US would still benefit from new crypto legislation and greater regulatory certainty. That said though, the approval of the ETF signals a potential landmark shift in attitudes towards Bitcoin.

#Shape #Crypto

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