This month in a Manhattan courtroom, cryptocurrency industry’s onetime star Sam Bankman-Fried was convicted of fraud, putting its excesses on full display. Despite the verdict, crypto markets were already moving on. The price of Bitcoin hit its highest level since 2022, surpassing $35,000, while Ether surged 10 percent to around $2,100. This renewed optimism has been attributed to the potential of a new fund: a spot Bitcoin Exchange Traded Fund (E.T.F.).
The E.T.F. would trade on traditional stock exchanges and offer an easier way for people to invest in cryptocurrencies, potentially bringing a wave of money into the industry. Grayscale Investments, a crypto asset manager, won a legal victory over the Securities and Exchange Commission (SEC) in August that seemed to pave the way for the offering of the Bitcoin product, while BlackRock, a giant money manager, filed paperwork to establish a similar E.T.F. to track the price of Ether.
Proponents have hailed the possibility of this new investment vehicle as crypto’s “salvation”. Michael Sonnenshein, Grayscale’s chief executive, commented on the signs of the so-called crypto winter melting. However, approval of a Bitcoin E.T.F. is not guaranteed, and some analysts have cast doubt on whether it would draw much new investment to the crypto world.
An E.T.F. is a bundle of assets split up into shares that investors can buy and sell on the open market. Rather than buying Bitcoin directly through a crypto exchange, investors in a Bitcoin E.T.F. would own shares in a fund that contains the cryptocurrency, removing the need to worry about digital wallet storage.
The crypto industry has sought a Bitcoin E.T.F. for more than a decade. In 2021, the S.E.C. approved E.T.F.s that bet on the future prices of Bitcoin without holding the currency itself. However, the agency rejected an effort by Grayscale to introduce the first E.T.F. linked directly to Bitcoin, arguing that the crypto markets were subject to manipulation and other consumer risks.
Grayscale challenged the S.E.C. in federal court in June 2022 and won, leading to two key offices within the S.E.C. that oversee the E.T.F. application process to work with companies that want to create Bitcoin E.T.F.s. An official approval could arrive as early as January, according to Bloomberg analysts, and Mr. Sonnenshein of Grayscale said he had observed a high “level of understanding and engagement” from the S.E.C.
Fidelity, the asset manager, has a pending application for a Bitcoin fund, while BlackRock has applied to create its own Bitcoin E.T.F. as well as one linked to Ether. Crypto investors are hoping that the approval of these funds will bring billions of dollars of new money into the industry.
Skeptics point to the fact that crypto E.T.F.s that have already traded in Canada and Europe have gained little interest from investors since inception. J.P. Morgan analysts argued that an E.T.F. approval would simply redistribute the capital that traders have already put into the industry, instead of attracting new investment.
Nevertheless, enthusiasm in crypto markets has continued, with The Block falsely reporting that BlackRock had applied to introduce an E.T.F. tracking the price of XRP, a digital currency. XRP’s price jumped by more than 10 percent, only to be revealed as false paperwork filed by an unknown trickster.