A sword is sharpened over ten years, written after the approval of the Bitcoin spot ETF in the United States
With the gradual expansion of compliant and low-threshold investment channels, as well as the continuous maturation of supporting tools and technologies, this market will gradually mature and fundamentally break away from the "circus atmosphere."Author: OKLink
Two days ago, we proposed that the U.S. would not easily let go of the Bitcoin spot ETF market link. After ten years of effort, today, 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 Stock Market (NASDAQ), meaning that Bitcoin will officially connect with the global financial system.
The journey has not been easy. Until today, there are still many doubts regarding both the "approval" of this resolution itself and the challenges that the already approved Bitcoin ETFs will face in the future.
Avoiding a "Circus Atmosphere," First "Normalizing" the View of Bitcoin
With the release of the SEC's approval documents, SEC commissioners have also issued statements from different positions, including support from SEC commissioner Hester Pierce, a long-time advocate for crypto, who elaborated on the thoughts behind this decade-long "rejection" and her personal views on the SEC, stating, "By failing to follow our normal standards and processes when considering spot Bitcoin ETPs, we have created an artificial frenzy around them. If these products had entered the market in the usual way that similar products do, we could have avoided the circus atmosphere we are in now."
Figure "The SEC has created an artificial frenzy"
The SEC, which aims to maintain "market neutrality," has also been swept up in the market's huge celebration.
Bitcoin is groundbreaking, much like the gold mined from the earth thousands of years ago. However, now we are in the digital age, where the tools for mining have changed, and the precious metals extracted have become digital assets. Similar to gold ETFs, the approval of Bitcoin spot ETFs allows investors to gain investment returns from Bitcoin by purchasing ETF shares without directly holding and managing Bitcoin.
If Bitcoin were viewed "normally," the market might not have to wait ten years.
Two Major Factors Holding Back the SEC
Over the past decade, the two most questioned aspects have been "the security of Bitcoin custody" and "the potential for manipulation of Bitcoin ETFs," which were reiterated in the approval documents.
Just like the aforementioned gold ETFs, the emergence of Bitcoin spot ETFs is intended to provide investors with convenient and low-threshold investment avenues. So who exactly are these "investors"?
ETFs are designed for funds, institutional investors, and retail investors who cannot hold the underlying assets. In other words, centralized custody by custodial institutions helps those who cannot directly hold the underlying assets. Technically speaking, for the security of Bitcoin custody, leaders in the Web3 industry engaged in wallet services can be referenced or directly collaborated with.
Figure SEC approval document screenshot
Regarding concerns about the potential manipulation of Bitcoin ETFs, SEC commissioner Caroline A. Crenshaw provided a detailed explanation in her statement. She believes that the global spot market behind Bitcoin ETPs is troubled by fraud and manipulation, concentration, and lack of adequate oversight.
Figure "Correlation does not protect investors"
Although the approval documents have calculated the correlation between the BTC prices (spot) from the two crypto exchanges, Coinbase and Kraken, and the CME futures prices since 2021, the correlation is as high as 95% to 99% when measured hourly. Therefore, if market manipulation occurs, the SEC can monitor it through the futures market.
Figure SEC approval document screenshot
However, using futures market monitoring to predict the spot market can serve as an investment data indicator for investors, but it cannot be fully utilized by regulatory agencies for comprehensive monitoring of market manipulation. The futures and spot markets are entirely different. The futures market is a trading venue for contracts to be fulfilled at a future point in time, while the spot market is for immediate trading of actual assets.
The Bitcoin spot market is gradually forming a global market, much like the first piece of gold that was mined around 4000 BC in ancient Mesopotamia and Egypt and subsequently priced by ancient Greece and other regions. This market is decentralized and multi-centered.
Relying on a single regulatory agency or using the futures market to regulate this already thriving spot market cannot provide investor protection. Therefore, using technology to solve the problems brought by technology is the right approach. By analyzing on-chain data and large fluctuations, one can gain insights into potential evidence of market manipulation in real-time.
Three Perspectives for the Future
- Companies providing technical solutions in the Web3 industry will welcome their opportunity.
In this SEC approval document, we see public concerns about issues such as technological security, custody security, and lack of monitoring. Market concerns also represent a significant market demand. Therefore, as the crypto asset market and financial markets continue to expand and connect, this demand will also grow.
Companies like Chainalysis, OKLink, and Elliptics, which provide data analysis tools, as well as those with mature security technologies for cold and hot wallets, will welcome their opportunity. For the security of Bitcoin custody, leaders in the Web3 industry engaged in wallet services can be referenced or directly collaborated with.
- ETFs and decentralization are not in conflict.
As development progresses, the Bitcoin spot market had already taken shape before the introduction of ETFs. Otherwise, institutions would not exist to attract investors by lowering fees. Besides hoping to attract investors, fees also have a "scale effect." As the size of the ETF increases, management fees and operating costs can be spread over a larger asset base, thereby reducing the fee per ETF share. This also indirectly indicates that financial institutions are very confident.
Whether it's VanEck founder Jan van Eck mentioning in a statement this morning that 5% of the profits will go directly to the Bitcoin developer community, or Bitcoin holders who have already overcome trading costs, the idea that Bitcoin and blockchain technology are public goods has taken root.
- The Bitcoin spot ETF sets a groundbreaking precedent for other non-securities crypto ETPs.
Hester Pierce stated in her statement, "Now we know the committee can conduct robust correlation analysis, perhaps the path to approving other spot crypto ETPs will not be so bumpy."
Figure "The path for other spot crypto ETPs is not so bumpy"
However, it is worth noting that this approval is based on non-securities crypto spot ETFs. The SEC chairman stated that today's committee action is limited to holding a non-security commodity Bitcoin ETP. "Therefore, subsequent 'other' crypto assets need to clarify whether they fall under securities.
As for Ethereum, it remains in a gray area. However, financial giants have already laid out their plans. 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 still been released. The SEC, which least wants to become a promoter of market frenzy, has also been embraced by this inclusive market, becoming a part of this "circus atmosphere." As compliant, low-threshold investment channels gradually expand and supporting tools and technologies continue to mature, this market will also gradually mature, fundamentally breaking away from the "circus atmosphere."
This time, the market has won! Tonight, a new era for the U.S. crypto market is about to begin.
Related articles: Countdown to Bitcoin spot ETF application approval: The U.S. will not easily let go!
SEC related statement documents:
https://www.sec.gov/files/rules/sro/nysearca/2024/34-99306.pdf
https://www.sec.gov/news/statement/gensler-statement-spot-bitcoin-011023
https://www.sec.gov/news/statement/peirce-statement-spot-bitcoin-011023
https://www.sec.gov/news/statement/crenshaw-statement-spot-bitcoin-011023#_ftn45
