The Crypto Stories You Need to Know This Week (#165 - 13 January 2023) - Spot Bitcoin ETF Approved, Circle Files for IPO, CFTC Issues DeFi Report

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1. Spot Bitcoin ETFs (Finally) Approved

The SEC approved the United States’ first spot Bitcoin ETF, greenlighting applications from asset managers including ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree, Fidelity, Valkyrie, BlackRock, Grayscale, Bitwise, Hashdex and Franklin Templeton.

This long-awaited development didn’t come without its fair share of drama, however.?

One day earlier, the SEC’s X account was hacked, with the hacker posting a fake ETF approval announcement.?

Fifteen minutes later, SEC Commissioner Gary Gensler posted that the regulator had not approved any spot Bitcoin exchange-traded products.?

The irony here was that the SEC had been posting that investors should be careful when trading in digital assets, including from a security perspective.

Not only was the SEC’s X account hacked, but it turns out they didn’t really follow their own recommendations as a tweet from X/Twitter later confirmed. ?

The SEC probably should have followed its own advice.

Now for some of my personal thoughts on the spot Bitcoin ETF approval.

• It is a big milestone - not only for Bitcoin or digital assets but in the overall history of money. It also makes me smile that the approval happened on 10 January 2024, almost date-to-date on the 15th anniversary of the first Bitcoin block being mined by Satoshi on 3 January 2009. The fact that an asset achieved so much in only 15 years shows its game-changing potential.?
• Despite the approval, the SEC Chair remains very anti-crypto - the reason this spot ETF was approved is not because of the SEC changing its mind but rather thanks to the independent judiciary branch that, in practice, forced the SEC to do so. SEC Chair Gary Gensler even released a statement subsequently reiterating his disdain for crypto stating that he believes that Bitcoin is “primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing."? (You can read his statement here.)

• There are serious divergences within the SEC - the ETF was approved by a 3 vs 2 vote. A good example of the internal disagreements was SEC Commissioner Hester Peirce, also known as Crypto Mom, who released a very powerful statement, writing that the SEC took not only an “arbitrary and capricious” treatment on this case but also wasted previous staff resources, lost credibility and "alienated a generation of product innovators". (You can read her statement here.)

• The ETF will unlock access - now any investor can have access to Bitcoin without headaches and at low fees. Most of these Bitcoin ETF issuers are waiving their fees at the start as there will be a race to gather assets, but even subsequently, the fees will be, on average, between 20 to 40 bps. We should expect 2-3 of these ETFs to capture the majority of the inflows.?

• Approval will also catalyze distribution - previously any wealth adviser or private banker had no incentive to promote Bitcoin or crypto to its clients as he or she could not be compensated for it. Now that changes radically. Roughly $4.6 billion in Bitcoin was traded on the first day of the ETFs going live.?

This was hardly a surprise, as this was expected to be a record-breaking launch.

Yet whilst these numbers may be flashy, what is more important here is to watch the flows that may arrive in the coming months as investment advisers and these ETF issuers start promoting the Bitcoin ETF more actively.

We should not underestimate the size of the US market, which has over $6 trillion in 401(k) assets alone.?

This once again demonstrates that digital assets are here to stay -? it's the same cycle that any new asset or asset class went through over the years, from ETFs to derivatives to emerging markets.

First they were ignored and then gradually entered the mainstream financial services sphere.

This will also indirectly catalyze more institutional players to enter the market, and we should expect other crypto ETFs (e.g., Ethereum) to be approved over the medium term.?

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2. Circles Files For IPO

USDC stablecoin issuer Circle has filed for an IPO.

The timing is very good for Circle, coming on the back of two years of strong revenues due to high interest rates (we should not forget that stablecoin issuers keep the yield of the assets they hold, including from treasuries) and the regained interest on digital assets.

3. CFTC Issues DeFi Report?

The US CFTC released a report outlining its recommendations to policymakers to mitigate risks surrounding the DeFi industry.?

Whilst the 79-page report does not have any groundbreaking insights, it is important as very few regulators have had the courage to talk about DeFi in-depth and this CFTC report does just that.

We should also expect some turf war as the SEC has previously mentioned that DeFi exchanges can be security exchanges, which would imply that DeFi falls within the remit of the SEC.

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*Please note that this newsletter reflects Henri’s personal views and not those of any organisation he is involved with. This newsletter is for educational purposes only, and none of its content should be construed as investment or financial advice of any kind.?