Cryptocurrency prices are rising, driven by a potential Bitcoin fund
In a Manhattan courtroom this month, the cryptocurrency industry faced a reckoning when its former star, Sam Bankman-Fried, was convicted of fraud in a trial that put the industry’s excesses on stark display.
But the ever-volatile crypto markets were already moving.
Shortly before Bankman-Fried’s ruling on November 2, Bitcoin’s price surpassed $35,000, its highest level since an industry collapse in 2022. Last week, Ether, the second most popular digital currency, rose 10 percent to around $2,100 . , his 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 sector for the past 18 months.
Driving the renewed euphoria? A potential new fund.
Crypto investors are becoming increasingly optimistic that the Securities and Exchange Commission will approve an exchange traded fund (ETF) that tracks the price of Bitcoin, analysts said. The fund would trade on traditional exchanges and give people an easy way to invest in cryptocurrencies, potentially creating a wave of money in the sector.
Some proponents have welcomed the possibility of this new investment vehicle, known as a spot Bitcoin ETF cryptos “rescue.” In August, Grayscale Investments, a crypto asset manager, won a legal victory against the SEC, which appeared to pave the way for it to offer the Bitcoin product. And last week, BlackRock, a giant money manager, completed paperwork to set up a similar ETF to track the price of Ether.
These new funds “could be a turning point,” said Grayscale CEO Michael Sonnenshein. “We are already starting to see quite a few signs of the crypto winter melting.”
The crypto industry has been craving good news since last year’s market collapse, which wiped out billions of dollars in savings virtually overnight. But approval of a Bitcoin ETF is not guaranteed, and some analysts have sowing doubt on whether it would attract many new investments in the crypto world.
The fixation on the new fund also underlines how far crypto has strayed from its anti-establishment roots. Bitcoin was created 15 years ago as an alternative to the traditional financial system and as a tool to undermine powerful Wall Street interests. Now some Bitcoin enthusiasts are celebrating giant financial firms like BlackRock as the saviors of the sector.
“The hypocrisy is just maddening,” said John Reed Stark, a former SEC official and outspoken critic of the crypto industry. “It’s an anathema to the reason why Bitcoin was created in the first place.”
An ETF is essentially a bundle of assets broken down into shares that investors can buy and sell on the open market. Instead of purchasing Bitcoin directly through a crypto exchange like Coinbase, investors in a Bitcoin ETF would own shares in a fund that holds the cryptocurrency, eliminating the worry of storing Bitcoin in a digital wallet.
Crypto advocates have been looking for a Bitcoin ETF for more than a decade. In 2017, the SEC denied an ETF application from crypto entrepreneurs Cameron and Tyler Winklevoss, who had been working on the project for years.
The sector continued to struggle. In 2021, the SEC approved ETFs that bet on the future prices of Bitcoin without holding the currency itself. But the agency rejected an attempt by Grayscale to introduce the first ETF tied directly to Bitcoin, arguing that the crypto markets were subject to manipulation and other consumer risks.
Grayscale challenged the SEC in federal court in June 2022. The legal battle ended in August, when a panel of judges ruled in favor of the company, finding the SEC’s actions “arbitrary and capricious.”
Since that ruling, two key offices within the SEC that oversee the ETF application process have been working with companies looking to create Bitcoin ETFs, three people familiar with the matter said. The agency’s stance has fueled optimism, two of them said, as regulators ask detailed, technical questions that indicate the process has reached an advanced stage. (Some aspects of the conversations were earlier reported by CoinDesk.)
Official approval could come as early as January, Bloomberg analysts have indicated predicted. Grayscale’s Mr. Sonnenshein said he had observed a high “level of understanding and commitment” to the SEC
“For us, it really remains a matter of when, not a matter of if,” he said.
An SEC spokesperson declined to comment.
Grayscale is one of them multiple companies who wants to offer crypto ETFs Fidelity, the asset manager, has a pending application for a Bitcoin fund. BlackRock has filed to create its own Bitcoin ETF, as well as the ETF tied to Ether. Crypto investors hope the adoption of Bitcoin and Ether ETFs will bring billions of dollars of new money into the sector.
Skeptics abound. JP Morgan analysts published a report last week calling the recent cryptocurrency surge “overblown” and arguing that an ETF approval would simply redistribute the capital traders have already poured into the sector, rather than attracting new investment. Crypto ETFs trading in Canada and Europe “have received little interest from investors since their inception,” the report said.
But the enthusiasm in the crypto markets has continued unabated.
The crypto news website The Block reported on Monday reported that BlackRock had filed to launch an ETF that tracks the price of XRP, a digital currency that has been the subject of years of litigation between its issuer, Ripple, and the SEC