Ten years of hard work, written after the US Bitcoin spot ETF was approved

Two days ago, we proposed that for the Bitcoin spot ETF market “The United States will not let go easily“ After ten years of sharpening the sword, this milestone has finally arrived. The U.S. Securities and Exchange Commission (SEC) has approved 11 Bitcoin spot ETFs, which will be listed on the Chicago Board Options Exchange (CBOE), the New York Stock Exchange (NYSE), and the Nasdaq Exchange (NASDAQ). This means Bitcoin will be officially connected to the global financial system.

This journey has not been easy. To this day, there are still many doubts about the “approval” of the resolution itself and the future challenges faced by the passed Bitcoin ETF.

Avoid the “Circus Atmosphere” and treat Bitcoin “normally” first

With the release of the SEC approval document, SEC commissioners also issued statements expressing different positions. SEC Commissioner Hester Pierce, a long-time advocate for Crypto, provided additional insights on the decade-long “rejection” and shared her personal thoughts. The SEC’s perspective is that “by deviating from our standard standards and processes in evaluating spot Bitcoin ETPs, we unintentionally generated an artificial frenzy around them. If these products had been introduced to the market in the same way as other similar products, it would have avoided the current circus-like atmosphere.”

Figure: “The SEC has created an artificial frenzy”

The SEC, which most wants to maintain “market neutrality”, has also been integrated into the huge carnival of the market.

Bitcoin is revolutionary, just like gold that was mined thousands of years ago. The only difference is that now we are in the digital age, and the tools for mining have changed, and the precious metal mined has turned into a digital asset. Similar to gold ETFs, a Bitcoin spot ETF would allow investors to gain investment returns from Bitcoin by purchasing ETF shares, without the need to directly hold and manage Bitcoin.

If we look at Bitcoin from a “normal” perspective, the market may not have to wait for ten years.

Two major factors holding back the SEC

In the past decade, the two main aspects that have been most questioned are the “custodial security issues of Bitcoin” and the “potential manipulation of Bitcoin ETFs,” which are also emphasized in the approval documents.

Similar to gold ETFs mentioned earlier, the introduction of Bitcoin spot ETFs is to provide convenience and low barriers for investors. But who exactly are these “investors”?

ETFs are designed for funds, institutional investors, and retail investors who cannot directly hold underlying assets. In other words, custodian institutions provide centralized custody to help those investors who cannot hold the underlying assets directly. Technically speaking, leaders in the Web3 industry who are involved in wallet businesses can be referenced, learned from, or even directly collaborated with regarding the custodial security issues of Bitcoin.

Figure: screenshot of SEC approval document

Concerns about the possible manipulation of Bitcoin ETFs were also explained in detail in a statement from SEC Commissioner Caroline A. Crenshaw. She believes that the global spot market behind Bitcoin ETPs is troubled by fraud and manipulation, concentration and lack of adequate supervision.

Figure: “Correlation does not protect investors”

Although it has been calculated in the approval document that starting from 2021, the correlation between the BTC price (spot) of the two crypto exchanges Coinbase and Kraken and the CME futures price, measured on an hourly basis, the correlation is as high as 95% to 99% . Therefore, if there is market manipulation, the SEC can detect it through the futures market.

Figure: Screenshot of SEC approval document

However, monitoring the futures market to predict the spot market can be used as an investment data indicator for investors, but it cannot be completely used by regulatory agencies as an indicator to comprehensively monitor market manipulation. Futures and spot markets are completely different. The futures market is a trading venue where contracts are fulfilled at a future point in time, while the spot market is where real assets are traded immediately.

The Bitcoin spot market is just like the first piece of gold was dug out in ancient Mesopotamia and Egypt around 4000 BC and was subsequently gradually priced by ancient Greece and other countries and regions.The gradually formed global market is decentralized and multi-centered.

Investor protection cannot be achieved by relying on a regulatory agency or through the futures market to regulate the already booming spot market. Therefore, using technology to solve the problems caused by technology is the right answer.Through the analysis of on-chain data, large-scale changes, etc., we can learn the evidence that this market may be manipulated from the first time.

3 Points of view on the future

1. Companies providing technical solutions in the Web3 industry will be in the spotlight.
   In this SEC-approved document, we see concerns from the public regarding technical security, custody security, and lack of monitoring. These concerns reflect the significant demand in the market. As the cryptocurrency market and financial market continue to expand and interconnect, the demand for these aspects will also grow.
   Companies specializing in data analysis tools such as Chainalysis, OKLink, Ellipitics, as well as companies with mature security technologies like cold and hot wallets, will benefit from this trend. Regarding the custody security issues of Bitcoin, leaders in the wallet business within the Web3 industry can be referenced for learning or direct collaboration.

2. ETFs and decentralization do not conflict.
   As development progresses, the Bitcoin spot market has already begun to take shape before the introduction of ETFs. Otherwise, various institutions would not exist to attract investors by lowering fees. In addition to attracting investors, fees also have a “scale effect”. When the size of the ETF increases, management expenses and operating costs can be spread over a larger asset base, thereby reducing the fees per ETF unit. Therefore, this also indirectly demonstrates the confidence of financial institutions.
   
   Whether it is Jan van Eck, the founder of VanEck, mentioning in a statement this morning that 5% of the profits will directly contribute to the Bitcoin developer community, or Bitcoin holders who have overcome transaction costs, the idea that Bitcoin and blockchain technology are public goods has become deeply ingrained.

3. The Bitcoin Spot ETF provides a groundbreaking precedent for other non-security crypto ETPs.
   “Now that we know the committee can perform robust correlation analysis, perhaps the road to approval of other spot crypto ETPs will be less bumpy,” Hester Pierce said in her statement.
   

Figure: “The road is less bumpy for other spot crypto ETPs”

However, it is worth noting that the approval this time is for a non-security-based Crypto Spot ETF. SEC Chairman stated that “today’s action by the Commission is limited to a non-security commodity bitcoin ETP.” Therefore, it is necessary to clarify whether other “cryptocurrency” assets are considered securities in the future.

For Ethereum, it’s in a murky zone. However, various financial giants have already made arrangements. According to the table below, the SEC’s final response deadline for the first VanEck application is May 23, 2024.

No matter how many “concerns” there are, this accelerated approval document has been released. The SEC, which least wants to become a promoter of market frenzy, is also embraced by this inclusive market and has become a member of this “circus atmosphere”. As compliance and low-barrier investment channels gradually expand, and supporting tools and technologies continue to mature, this market will also gradually mature and fundamentally break away from the “circus atmosphere”.

This time, the market won! Tonight, a new era in the U.S. crypto market is about to begin.

Related Reading:One day countdown to approval of Bitcoin spot ETF application: The United States will not let it go easily!

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