With the stroke of a pen, a new asset class is created. Well, not exactly; a new asset class has been legalized. Cryptocurrencies are now a legal asset class after the U.S. securities regulator approved the first US-listed exchange-traded funds (ETFs) to track bitcoin.
In a watershed moment, the Securities and Exchange Commission has approved 11 applications, including those from BlackRock, Ark Investments/21 Shares, Fidelity, Invesco, and VanEck.
The application has been cleared despite warnings from some officials that the products carried risks.
In anticipation of the clearance, bitcoin had recently shot up by more than 70 percent. The cryptocurrency players have been battling authorities and governments for over a decade to legalize the asset class.
Bitcoin is one of the most traded cryptocurrencies in the world. Even before the SEC cleared bitcoin, its market capitalization stood at more than $913 billion. According to the Investment Company Institute, as of December 2022, the total net assets of U.S. ETFs stood at $6.5 trillion.
Even though Bitcoins were not approved, the authorities cleared Bitcoin futures in 2021.
Analysts are expecting the ETFs to garner a considerable amount of money. Given the secrecy that comes with the asset, raising funds should not be a problem. Standard Chartered analysts recently said the ETFs could draw $50 billion to $100 billion this year alone.
Asset management companies are sweetening the deal by reducing the fees charged to investors, with some even considering waiving the fee for a certain period.
There are voices of dissent. Dennis Kelleher, CEO of investor advocacy think tank Better Markets, warned that bitcoin was still vulnerable to crypto fraudsters and said approving the ETFs was a "historic mistake."
There is still confusion in the industry as Bitcoin is not a legal asset, but futures and ETFs are. Adding to the confusion, SEC Chair Gary Gensler said in a statement, "While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin."
However, the approval means that retail and institutional investors can now legally purchase cryptos without fear of authorities raising questions. The immediate impact of this clearance is expected to fall on gold ETFs. Cryptocurrency proponents were marketing the asset as digital gold in its earlier days. But bitcoins are roughly 3.6 times more volatile than gold, making them riskier.
The clearance means that ETFs will now be listed on Nasdaq, the NYSE, and the CBOE. The ETFs will hold physical bitcoin purchased from crypto exchanges and held via custodians like Coinbase Global. The ETFs will track a bitcoin benchmark like an index, which bases its price on data collected from multiple Bitcoin-USD markets operated by cryptocurrency exchanges.
Now that the U.S. has cleared the ETFs, money, including that from Indian investors, will find its way into these assets. Though the Indian government and many others, like China, have not approved the asset, they may have to rethink their stance.
In a seamless and digital world, money can flow into any market without much hassle. Rather than losing money to other markets, joining the party and allowing these instruments to be traded in India would be better.
In conclusion, as Bitcoin continues to gain popularity in India, aligning with global regulatory trends, especially in the aftermath of the SEC's approval of Bitcoin ETFs, can be a strategic move. It presents an opportunity for India to foster a regulated environment that not only safeguards investors but also for the transformative potential of digital assets for financial inclusion and economic growth.
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