In ETF land, 2024 could kick off with a bang if, as expected, spot bitcoin ETFs win Securities and Exchange Commission approval this month.
Bloomberg Intelligence predicts a 90% chance that the SEC will approve a spot bitcoin exchange-traded fund by Jan. 10. That's the deadline for the commission to either approve or deny a proposed rule change to list and trade shares of the ARK 21Shares Bitcoin ETF, said James Seyffart, a Bloomberg Intelligence ETF research analyst.
The application for a spot bitcoin ETF by Cathie Wood's ARK Investment Management and 21Shares is first in line among the recent wave of 19b-4 filings for spot bitcoin ETFs.
However, the SEC is likely to greenlight multiple applications at once, Seyffart said.
"We think they're going to issue 19b-4 approval for many if not all of the current applications that are in front of them," the analyst said, adding that the SEC "played a kingmaker role when they allowed BITO to launch by itself first, and I don't think they want to do that again."
BITO is the ticker symbol for the ProShares Bitcoin Strategy ETF, the first U.S. bitcoin-linked ETF. The fund, which invests in bitcoin futures and not in bitcoin directly, launched in October 2021 and reached more than $1 billion in assets by the end of its second trading day.
When it comes to approving a spot bitcoin ETF, the SEC has been "sort of backed into a corner" by a court decision in Grayscale Investments' case and by issuers eager to offer spot bitcoin ETFs that have labored over the years to answer the SEC's questions, Seyffart said.
In August, a federal appeals court ruled in favor of Grayscale in its case against the SEC over the regulator's denial of an application to convert the Grayscale Bitcoin Trust to a spot bitcoin ETF.
Given those factors, "there's very few paths for [the SEC] to continue denying these things in our view," Seyffart said, adding that he's currently tracking 14 proposed spot bitcoin ETFs.
PROPOSED BITCOIN ETFS
Among the list of proposed spot bitcoin ETFs is the Bitwise Bitcoin ETP Trust.
"We're hopeful to see a spot bitcoin ETF approved in early 2024, and we hope that Bitwise is amongst the providers that achieve that milestone," said Matt Hougan, chief investment officer at Bitwise Asset Management. Most investors buying bitcoin since its creation some 15 years ago have been retail self-directed investors, Hougan said.
"And the majority of financial advisers, family offices and institutions have been waiting on a spot bitcoin ETF to enter the market," he said. It's important to remember that those investors control much more money than retail self-directed investors, Hougan said, "so, this is … a very big deal."
Hougan believes that SEC approval of spot bitcoin ETFs "will mark a transition from bitcoin as sort of a renegade idea into a mainstream idea amongst traditional investors."
In 2017, BlackRock CEO Larry Fink was quoted as calling bitcoin an "index of money laundering."
"And now he says it could transform finance, and he's launching an ETF to give people exposure to it," Hougan said. "I think that beautifully encapsulates how bitcoin has defeated the skeptics time and again and is now stepping fully into the mainstream."
While multiple spot bitcoin ETFs are likely to launch at once, and competition will be stiff, Hougan believes "there will be a couple of winners.
"We're really confident at Bitwise that there's [an] important place for us in the market," he said, noting that the firm is a crypto specialist. "Bitwise may be smaller than BlackRock as a whole, but we have 63 people whose sole focus is crypto, 24/7/365," Hougan said. "I'll stack that against anybody."
That's important because "advisers who allocate are going to get questions from clients, and they're going to want answers," he said.
A Bitwise spokesperson declined to say how much the firm has in total assets under management.
"If we look at what happened with the ether futures ETF launch, market share went to the product with the lowest fee, and I think that will likely be the main differentiator among spot bitcoin ETFs," said Roxanna Islam, head of sector and industry research at VettaFi, a data and analytics provider.
After that, Islam thinks market share will likely go to "vocal players in the crypto industry" rather than the big asset management firms.
"Issuers like Blackrock and Fidelity currently have blockchain/crypto equity ETFs that are not market leaders in the industry, so I think that's an indication that the crypto world has different leaders in the ETF space than you would expect," Islam said.
ETFs were "a big revolution for the mutual fund industry, and it's really taking over the mutual fund industry," Fink said during a July appearance on the Fox Business show “The Claman Countdown.”
"And we do believe that if we can create more tokenization of assets and securities — and that's what bitcoin is — it could revolutionize, again, finance," he said.
Asked about his earlier skepticism regarding crypto, the BlackRock CEO said he was skeptical because among early users, "it was heavily used for, let's say, illicit activities."
Nate Geraci, president of The ETF Store, an investment advisory firm specializing in ETFs, and host of the weekly podcast "ETF Prime," expects that the SEC will approve spot bitcoin ETFs "in the first part of 2024 and likely in January."
Recently, "there's clearly been significant back and forth between the SEC and prospective spot bitcoin ETF issuers," Geraci said. "The SEC is highly engaged in this matter, and it doesn't seem like they would take that approach if they were going to deny these products."
The key thing to watch with regard to such products is what demand will actually look like.
"There has been so much hype around spot bitcoin ETFs for years now that I do feel like there's at least the potential for a letdown," Geraci said. With multiple spot bitcoin ETFs likely to launch on the same day, taken cumulatively, he said, "I do expect them to break every single ETF launch record out there."
If the SEC approves spot bitcoin ETFs in January, "then I would expect them to approve spot ethereum ETFs, likely in the first half of the year," Geraci said, citing the decision in the Grayscale case.
The thrust of Grayscale's argument was that since the SEC was comfortable with ETFs owning Chicago Mercantile Exchange-traded bitcoin futures, then it should be comfortable with spot bitcoin ETFs, he said.
"Grayscale won that argument, and since that time the SEC has allowed ethereum futures ETFs to come to market," Geraci said. "So, if you add this all together, it doesn't take a rocket scientist to connect the dots and say the SEC should approve spot ethereum ETFs in that case."