SEC approves Bitcoin ETP

SEC Approves Bitcoin ETP not ETF

The U.S. Commission has made a historic decision to approve the listing and trading of spot bitcoin exchange-traded product (ETP) shares, reversing its previous stance of rejecting over 20 exchange rule filings for spot bitcoin ETPs from 2018 to March 2023. This decision marks a significant shift in the Commission’s attitude towards bitcoin and crypto assets, as well as a major breakthrough for the cryptocurrency space.

SEC approves Bitcoin ETP

An exchange-traded product (ETP) is a broad term that covers various types of investments that trade on public exchanges, such as exchange-traded funds (ETFs), exchange-traded notes (ETNs), and exchange-traded commodities (ETCs). An exchange-traded fund (ETF) is a specific type of ETP that is regulated as a fund under the UCITS regime and usually tracks an equity or fixed income market index. The main difference between an ETP and an ETF is that an ETP may not be subject to the same rules and standards as an ETF, such as diversification requirements, leverage limits, or fiduciary duties. An ETP may also have higher counterparty and credit risks than an ETF, depending on its structure and underlying assets.

One of the key factors that led to this change was the U.S. Court of Appeals ruling in favor of Grayscale, a leading crypto asset manager that sought to convert its Grayscale Bitcoin Trust into an ETP. The court vacated the Commission’s disapproval order and remanded the matter to the Commission, forcing it to reevaluate its position. Faced with similar filings from other issuers, the Commission decided that the approval of spot bitcoin ETPs was the most sustainable path forward.

The Commission’s chair, Gary Gensler, emphasized the Commission’s neutrality towards specific companies or investments, focusing on alignment with the Exchange Act and regulations. He also clarified that this decision applied solely to ETPs holding one non-security commodity, bitcoin, and did not signal anything about the Commission’s views on other crypto assets or the current state of non-compliance of certain crypto asset market participants with the federal securities laws.

The approval of spot bitcoin ETPs came with certain investor protections. Sponsors of bitcoin ETPs must provide full, fair, and truthful disclosure about the products, and these products must be listed on registered national securities exchanges with robust anti-fraud measures. Existing rules and standards of conduct also apply, ensuring broker-dealers adhere to Regulation Best Interest, and investment advisers uphold fiduciary duties.

The Commission also announced that it was reviewing registration statements for 10 spot bitcoin ETPs, aiming to establish a level playing field for issuers. According to the latest news, the Commission has approved 11 spot bitcoin ETP applications from different issuers, including Fidelity, BlackRock, and VanEck, among others. These ETPs are set to begin trading on Thursday, January 11, 2024.

Gensler acknowledged the speculative nature of bitcoin, distinguishing it from traditional commodity ETPs. He also warned investors about the risks and challenges associated with bitcoin, such as volatility, cyberattacks, and illicit activities, such as ransomware. He urged investors to do their homework and understand the potential benefits and pitfalls of investing in bitcoin.

The approval of spot bitcoin ETPs opens new possibilities for the integration of bitcoin into traditional financial markets, reshaping the landscape for investors and setting the stage for further developments in the cryptocurrency space. It also reflects the growing demand and acceptance of bitcoin as a legitimate asset class, as well as the increasing maturity and regulation of the crypto market. The spot bitcoin ETPs are expected to attract more institutional and retail investors, as well as lower the barriers and costs of entry for crypto investing.

Source:

SEC.gov | Statement on the Approval of Spot Bitcoin Exchange-Traded Products

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