Some money managers expect to get the green light as early as this afternoon to launch spot bitcoin exchange-traded funds despite the chaos triggered Tuesday by a fake social-media post claiming those approvals had already been granted.
The mishap attracted new scrutiny to the Securities and Exchange Commission, which was forced late Tuesday to say that its government account on X, formerly known as Twitter, had been hacked and that it had not approved the listing and trading of spot bitcoin ETFs.
The SEC’s explanation was that there had been unauthorized access on the agency’s @SECGov X account “by an unknown party for a brief period of time shortly after 4 pm ET.”
The @SECGov twitter account was compromised, and an unauthorized tweet was posted. The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.
— Gary Gensler (@GaryGensler) January 9, 2024
The platform X said an unidentified individual obtained control over a phone number associated with the account through a third party, and that the SEC account didn’t have two-factor authentication enabled.
The hack and subsequent communications at the SEC — an aggressive foe of the crypto world under chair Gary Gensler — sparked calls in Washington for a closer look at the agency.
“The United States is home to the world’s deepest and most liquid capital markets and stability and soundness are imperative if investors are to maintain their trust in our markets,” Republican Senators JD Vance and Thom Tillis said in a letter to Gensler on Tuesday evening.
“It is unacceptable that the agency entrusted with regulating the epicenter of the world’s capital markets would make such a colossal error.”
Despite the confusion, some potential issuers with applications before the SEC still expect to get their approvals.
Four of these applicants told Yahoo Finance early Tuesday they expected the SEC to approve their applications sometime Wednesday and that trading could begin as early as Thursday based on that timing.
Following the hack, several said they still expected approvals today.
“I still expect a launch tomorrow,” Valkyrie Funds Chief Investment Officer Steven McClurg told Yahoo Finance Wednesday morning, calling the chances of approval “95%.” Valkyrie is among the applicants.
In another sign that trading could soon begin, the Chicago Board of Options Exchange (CBOE) has asked the SEC to accelerate registration for its listing of a bitcoin ETF from one applicant, Ark 21 Shares.
The crypto industry views these ETFs as a way to gain mainstream acceptance. The products would allow everyday investors to get exposure to bitcoin without having to own it, trading it like they would a stock.
It could also mean bitcoin becomes a potential staple in 401(k)s, IRAs, and pension plans.
There are 12 applications from 14 money managers, a list that includes some of the biggest names on Wall Street, from BlackRock (BLK) to Franklin Templeton (BEN), as well as a number of firms better known in the crypto world.
These issuers are competing with one another in the run-up to their launches to offer the lowest fees, hoping to attract as many investors as possible once ETFs begin trading.
Other big Wall Street players plan to be part of the action, as well. JPMorgan Chase (JPM) and Goldman Sachs (GS) are among the giant banks that have offered to help some of these money managers create and redeem shares of their new funds.
Optimism about these approvals helped bitcoin surge 164% in 2023 and start 2024 by rising above $47,000, its highest level in nearly two years.
The price has dipped in the last day amid the confusion and chaos caused by the SEC hack, currently hovering near $45,000 after spiking as high as nearly $48,000 Wednesday afternoon.
A decade in the making
The crypto industry has been waiting more than a decade for this moment.
The first application to create a spot bitcoin ETF came in 2013 from crypto entrepreneurs and twins Tyler and Cameron Winklevoss, famous for their early role in the creation of Facebook.
Since then, the SEC has denied more than 30 similar applications, arguing the products were vulnerable to market manipulation.
A key turnaround moment came last year in June when the world’s biggest money manager, BlackRock, filed for a spot bitcoin ETF. The interest from one of Wall Street’s biggest names sparked other asset managers to follow suit.
Another important development came last August when one of the ETF applicants, Grayscale Investments, won a key legal victory over the SEC. Grayscale had sued the SEC in 2022 after it wasn’t allowed to convert its Grayscale Bitcoin Trust (GBTC) into a spot bitcoin offering.
Its core argument was that the agency had already approved exchange-traded products that held bitcoin futures contracts and thus had “acted arbitrarily and capriciously.”
A three-judge panel of the District of Columbia Court of Appeals in Washington sided with Grayscale, saying the firm had “advanced substantial evidence” its product was similar to bitcoin futures ETFs previously approved by the SEC.
That forced the SEC to reconsider Grayscale’s spot bitcoin ETF application, along with others filed by rival money managers.
The SEC’s first deadline to consider these various ETFs is today, for a joint offering from Ark Invest and 21Shares. Other deadlines are as late as April.
ETF issuers and analysts say they believe the SEC will choose to approve all applications that pass muster by today’s deadline, so as not to give any first movers an advantage over the rest of the industry.
One of the applicants, Ark Investment Management CEO Cathie Wood, told Yahoo Finance that the dominant providers of spot bitcoin ETFs will be those that take in the most money from investors right out of the gate.
The winners “will be a few and it will be the most liquid,” she said.
Historically, launches for other bitcoin products have sent bitcoin’s price on a wild ride.
It happened in 2017 with the launch of the country’s first bitcoin futures contracts and then in 2021 with the SEC’s approval of the first bitcoin futures ETFs. Prices soared and then fell by large amounts in the year following the launches.
In recent weeks, much debate has raged over whether bitcoin will rise or fall once the lauded moment of approval comes to pass.
Gautam Chhugani, managing director of the research arm for AllianceBernstein, said his team estimates such financial products will garner $10 billion or more in investment flows through the end of 2024 and “hundreds of billions of dollars” over a two-year period.
That, he added, will help push bitcoin’s price even higher.
“We do think that bitcoin goes to $150,000 by 2025,” Chhugani added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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