What happened: On January 10, 2024, the U.S. Securities and Exchange Commission approved for the first time the trading of funds containing Bitcoin on U.S. stock exchanges.
Why it matters: This is a win for cryptocurrency in the U.S. and a watershed decision by the financial regulator. The move is expected to boost confidence in cryptocurrencies and help crypto’s bid to join mainstream financial instruments.
Learn more: VISION by Protiviti asked industry experts to weigh in on the topic. Go deeper below.
On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved for the first time the trading of bitcoin-holding exchange-traded funds (bitcoin ETFs) on the U.S. stock market, granting the permit to 11 applicants after the regulator lost a related case in an appeals court last year. What that means is that individuals and investors can now own Bitcoin without having to purchase it themselves, by simply investing in those funds.
The announcement was seen as a win by those with a positive outlook of Bitcoin and cryptocurrencies generally and was met with skepticism and caution by those who have focused on the well-publicized volatility of crypto and the scandals associated with it. Among the skeptics were members of the Commission itself, such as Commissioner Crenshaw, who warned against potential exposure of market participants to fraud and manipulation.
Over the last several months, VISION by Protiviti has been reaching out to investors, academics, tech entrepreneurs and finance executives for their views on cryptocurrencies and their investment and trading potential as part of our Future of Money exploratory series. While some of our interviewees advised a “wait and see” approach, others saw crypto, and Bitcoin specifically, as promising alternatives deserving to be mainstreamed with the appropriate regulatory guards. We asked two of our recent contributors – Matthew le Merle of Blockchain Coinvestors and Ross Edwards of Ripple – to comment on the recent development.
A Significant Moment for Bitcoin
Matthew Le Merle is managing partner and CEO of Blockchain Coinvestors, which he launched in 2014 to support the fastest growth blockchain companies and crypto projects. He sees the SEC decision as a positive and long-overdue step. “If investors want access to a specific investment, then it is the financial industry’s responsibility to provide that access in low cost, easily available, secure and compliant ways. It is the SEC’s responsibility to provide the regulatory context for this to occur. The good news was that the U.S. judicial system forced the SEC to reverse themselves after several years of baseless opposition to a Bitcoin spot ETF.”
Ross Edwards, Senior Director, Client Solutions and Delivery for Ripple, underscores the importance of the decision: “The significance of this moment cannot be understated. Approval of a Bitcoin spot ETF is further legitimization of crypto, especially given the types of companies that were involved this time around, such as BlackRock, Fidelity, JP Morgan and others. All of these companies entered the crypto space in a significant way last year, especially around tokenization.” He adds that “Last year was a tipping point for crypto to be recognized as mainstream, but we have yet to hit the breakout moment where institutional adoption for real-world utility takes off — which hopefully will be spurred through the investment that comes into the space post the ETF approval.”
Aaron Lindstorm, Americas Head of Transformation and Digital Partnerships at Allianz Trade, is skeptical of real-world utility, at least for the time being. In an interview with VISION by Protiviti in September, Lindstrom said, “Volatility is a huge issue for crypto. Looking at Bitcoin as an example, Forbes talks about cryptocurrency’s volatile history […] and it is not uncommon to see the value rise or fall by 10% or more in a day. That type of fluctuation can destroy a company’s profit margin. It would be very difficult to manage a consistent profit margin unless your entire supply chain was operating on Bitcoin, and even then, swings in value could leave manufacturers and distributors in a losing position.”
Evelyn Dilsaver, financial executive and former Charles Schwab president and CEO, took a more pragmatic view when we spoke with her in the fall. “We’re all going to have to learn how to accept crypto. […] Over the next several years, whether it’s crypto or some sort of digital asset, we’re going to have to figure out how to accept it.” She says that “eventually, [Bitcoin] will become centralized, and it has to be governed just like banks do.” For now, “investing in the underlying platforms that make it happen versus the very edge of the crypto” is the more reasonable path.
This is music to the ears of Ripple’s Ross Edwards. Citing data from a recent Protiviti-Oxford survey on the future of money, Edwards said in November: “For me, it’s a great source of optimism that business leaders share our views on a digital future […] 70% of business leaders say they plan to identify and leverage strategic partnerships with fintech companies, payment processors or blockchain providers over the next decades. That tells me they’re aware of the need, but they don’t necessarily feel like they need to be experts in the space; they want to find the right partners in this space. And I think that that’s where Ripple can fill the void and provide intuitive solutions that work for their businesses.”
A Bet on Innovation
“You have to be pro-innovation, there is no alternative,” Matthew Le Merle told us when we interviewed him prior to the crypto ETF approvals. “Right now, every other jurisdiction in the world is leading in establishing pro-innovation regulation for digital moneys, commodities and assets. And unfortunately, in America, we have a small number of people who believe that we should be killing this innovation.”
“I think that what a regulator has to do is to create a dynamic, flexible regulatory structure that provides some clarity, but still permits additional waves of innovation, and it’s very difficult,” Le Merle acknowledged. No doubt, the SEC would agree with that.