All too often, as Shakespeare wrote, sound and fury signifies nothing. But the frenzied reaction to the US Securities & Exchange Commission’s (SEC) approval of the sale of spot Bitcoin exchange-traded funds (ETFs) last week matched the significance of the occasion.
After a decade-long wait, US investors are now able to gain exposure to the digital currency Bitcoin through ETFs (investment funds that track the performance of underlying assets) without having to directly buy it on a cryptocurrency exchange. That the 11 firms granted SEC approval to offer 11 Bitcoin ETFs included US asset management heavyweights BlackRock, Fidelity Investments and Franklin Templeton demonstrated how the gap between traditional and digital asset markets will be significantly diminished by this development.
Standard Chartered Bank estimates the issuance of Bitcoin ETFs will attract inflows of $50-$100 billion in 2024 and there’s been no shortage of debate over the effect of the news on the price of Bitcoin. Yet the transformative impact of US regulatory authorisation of spot Bitcoin ETFs transcends short-term financial gains.
The prospect of Bitcoin being invested by investment professionals into retirement plans, university endowments, sovereign wealth funds and pensions through investment managers will improve the ongoing security and transparency challenges that has surrounded digital assets and which came to the fore with the high-profile scandals bringing down the likes of FTX and Celsius. As Jean-Marie Mognetti, CEO of CoinShares, said last week following the SEC’s announcement: “Bitcoin has graduated with distinction and is recognised as an investable asset class.”
For now Bitcoin ETFs are prohibited for sale in the UK by the Financial Conduct Authority (FCA) which classifies them as “restricted mass-market instruments”. But Bitcoin ETFs are not unheard of in Europe; London-based Jacobi Asset Management’s Jacobi FT Wilshire Bitcoin ETF became the first ever of its kind last August when it went live on Euronext Amsterdam Stock Exchange.
As with fintech, the digital assets sector has evolved through hardened experience and matured to the point where more regulatory bodies are becoming more familiar with crypto assets and more satisfied that crypto assets can offer both sufficient investor protection and absence of market manipulation
With investors now able to easily track their Bitcoin funds that are being safeguarded by the biggest financial institutions, some believe it’s a question of time before Bitcoin ETFs get given the green light in the UK. But regardless of when what was sanctioned on Wall Street last week will be permitted in the City, the news marks a breakthrough for the growth of the digital assets industry within the Square Mile.
The reasons it represents a game changer for UK financial services are twofold: a strong example has been set by a major regulator that barriers to entry to investing in Bitcoin have significantly diminished and a nascent industry, hitherto renowned for perceived trading complexities, suddenly became easier for investors to navigate, operate within and understand.
But for all that some crypto true believers like to emphasise the shock of the news in their sector, the City has recently been here before. The fintech revolution a decade ago ushered in contactless payments and frictionless cross-border transactions only after a lengthy journey spent securing the requisite regulatory shifts and government and financial services support. Just as London played host to successful fintech pioneers such as Starling and Monzo, so equivalent success for digital assets firms can now happen so long as the government translates supportive sentiments into meaningful actions for its ambition to make the UK a global hub for cryptoasset technology.
Additionally, as with fintech, the digital assets sector has evolved through hardened experience and matured to the point where more regulatory bodies are becoming more familiar with crypto assets and more satisfied that crypto assets can offer both sufficient investor protection and absence of market manipulation.
This isn’t the wild west anymore. Blockchain technologies are consistently demonstrating tangible advancements in payments efficiency and market innovation. Away from the hype over digital currency speculation and non-fungible tokens (NFTs), digital asset custody providers such as Copper are partnering with exchange-traded product providers to take advantage of the greater institutional accessibility towards crypto against a backdrop of more effective regulation and political acceptance.
With the SEC’s X (formerly Twitter) account being breached resulting in a fake post announcing the news a day earlier, the issuance of the first Bitcoin ETFs was not without its farcical elements. But with many bad actors having now left the crypto stage, last week showed that the UK faces tough competition if it wants to capitalise on its proven financial services credentials and become the home of the digital assets trading ecosystem and ultimately, harness the growth potential it brings.
Eva Gustavsson is head of public affairs at digital assets custodian Copper
