Cryptocurrency
Prices Surge, Driven by a Potential Bitcoin Fund
Investors anticipate
regulatory approval of an exchange traded fund linked directly to Bitcoin,
which they hope will encourage more people to invest in the digital asset.
·
The
Securities and Exchange Commission will approve an exchange traded fund, or
E.T.F., that tracks the price of Bitcoin
·
Possibility
of this new investment vehicle, known as a spot Bitcoin E.T.F.
In
a Manhattan courtroom this month, the cryptocurrency industry faced a reckoning
as its onetime star, Sam Bankman-Fried, was convicted of fraud in a trial that
put the industry’s excesses on vivid display.
But
the ever-volatile crypto markets were already moving on.
Shortly
before Mr. Bankman-Fried’s verdict landed on Nov. 2,
the price of Bitcoin surpassed $35,000, its highest level since an industry
meltdown in 2022. Last week, Ether, the second-most popular digital currency,
surged 10 percent to around $2,100, its best performance in months. Some
investors rushed to declare the end of the so-called crypto winter of falling
prices and financial scandals that have plagued the industry for the last 18
months.
Driving
the renewed euphoria? A potential new fund.
Crypto
investors are growing optimistic that the Securities and Exchange Commission
will approve an exchange traded fund, or E.T.F., that tracks the price of
Bitcoin, analysts said. The fund would trade on traditional stock exchanges and
offer an easy way for people to invest in cryptocurrencies, potentially
bringing a wave of money into the industry.
Some
proponents have hailed the possibility of this new investment vehicle, known as
a spot Bitcoin E.T.F., as crypto’s “salvation.” In August, Grayscale
Investments, a crypto asset manager, scored a legal victory over the S.E.C.
that seemed to pave the way for it to offer the Bitcoin product. And last week,
BlackRock, a giant money manager, filed paperwork to establish a similar E.T.F.
to track the price of Ether.
These
new funds “could represent a watershed,” said Michael Sonnenshein,
Grayscale’s chief executive. “We’re already starting to see quite a few signs
of the crypto winter melting.”
The
crypto industry has yearned for good news since last year’s market collapse,
which erased billions of dollars in savings practically overnight. But approval
of a Bitcoin E.T.F. is not guaranteed, and some analysts have cast doubt on
whether it would draw much new investment to the crypto world.
The
fixation on the new fund also underscores how far crypto has drifted from its
anti-establishment roots. Bitcoin was created 15 years ago as an alternative to
the traditional financial system and a tool to undermine powerful Wall Street
interests. Now some Bitcoin enthusiasts are celebrating giant financial firms
like BlackRock as the industry’s saviors.
“The
hypocrisy is just maddening,” said John Reed Stark, a former S.E.C. official
and outspoken critic of the crypto industry. “It’s anathema to why Bitcoin was
created in the first place.”
An
E.T.F. is essentially a bundle of assets split up into shares that investors
can buy and sell on the open market. Rather than buy Bitcoin directly through a
crypto exchange like Coinbase, investors in a Bitcoin E.T.F. would own shares
in a fund that contains the cryptocurrency, eliminating the need to worry about
storing any Bitcoin in a digital wallet.
Crypto
proponents have pursued a Bitcoin E.T.F. for more than a decade. In 2017, the
S.E.C. denied an E.T.F. application by the crypto entrepreneurs Cameron and
Tyler Winklevoss, who had been working on the project for years.
The
industry kept battling. In 2021, the S.E.C. approved E.T.F.s that bet on the
future prices of Bitcoin without holding the currency itself. But the agency
rejected an effort by Grayscale to introduce the first E.T.F. linked directly
to Bitcoin, arguing that the crypto markets were subject to manipulation and
other consumer risks.
Grayscale
challenged the S.E.C. in federal court in June 2022. The legal battle ended
this August, when a panel of judges ruled in favor of
the company, deeming the S.E.C.’s actions “arbitrary and capricious.”
Since
that ruling, two key offices within the S.E.C. that oversee the E.T.F.
application process have worked with companies that want to create Bitcoin
E.T.F.s, three people familiar with the matter said. The agency’s posture has fueled optimism, two of them said, because the regulators
are asking detailed, technical questions that suggest the process has reached
an advanced stage. (Some aspects of the talks were previously reported by
CoinDesk.)
An
official approval could arrive as early as January, analysts at Bloomberg have predicted.
Mr. Sonnenshein of Grayscale said he had observed a
high “level of understanding and engagement” from the S.E.C.
“For
us, it really continues to be a matter of when, not a matter of if,” he said.
A
spokesman for the S.E.C. declined to comment.
Grayscale
is one of several firms seeking to offer crypto E.T.F.s. Fidelity, the asset
manager, has a pending application for a Bitcoin fund. BlackRock has applied to
create its own Bitcoin E.T.F., as well as the one linked to Ether. Crypto
investors are hoping that the approval of Bitcoin and Ether E.T.F.s will bring
billions of dollars of new money into the industry.
Skeptics abound. J.P. Morgan analysts published
a report last week that called crypto’s recent surge “overdone” and argued that
an E.T.F. approval would simply redistribute the capital that traders have
already put into the industry, rather than attracting new investment. Crypto
E.T.F.s that trade in Canada and Europe “have gained little interest from
investors since their inception,” the report said.
But
the enthusiasm in crypto markets has continued unabated.
On
Monday, the crypto news website The Block reported that BlackRock had applied
to introduce an E.T.F. tracking the price of XRP, a digital currency that has
been the subject of years of litigation between its issuer, Ripple, and the
S.E.C.
XRP’s
priced jumped by more than 10 percent. Crypto fans celebrated on X, the website formerly known as Twitter.
But
the news wasn’t true: An unknown trickster had filed false paperwork that
listed the name of one of BlackRock’s executives.