After ten years of rejections, the US approved bitcoin ETFs in January 2024. Here is what happened, and what it has meant.
The first application for a bitcoin ETF in the US came in 2013. In the years that followed, the US securities regulator, the SEC, rejected every application for funds that own bitcoin directly. The reason given was the risk of fraud and market manipulation.
Two events changed the picture in 2023. In the summer, BlackRock, the world's largest asset manager, applied to launch its own fund. In August, Grayscale won a court case against the regulator, with the court finding that the rejections were poorly justified.
On 10 January 2024, the regulator approved eleven bitcoin ETFs from, among others, BlackRock, Fidelity, Grayscale, Bitwise, ARK and 21Shares. Trading started the next day.
At the same time, Grayscale was allowed to convert its existing bitcoin fund into an ETF. Many investors in the more expensive Grayscale fund moved their money to the new, cheaper alternatives, which created selling pressure in the first weeks.
Several parties stand behind each ETF. A custodian holds the bitcoin the fund owns, and for most of the funds that was the crypto exchange Coinbase.
Authorized participants, such as Jane Street and JP Morgan, create and redeem units and source bitcoin when demand rises. JP Morgan's role drew attention, since its chief executive Jamie Dimon has been highly critical of crypto.
The most important effect was access. Bitcoin could now be bought through an ordinary brokerage account, in a format that pension funds, advisers and wealth managers already knew.
Many also saw it as legitimization. When the world's largest asset managers market bitcoin products, it is hard to reverse.
The comparison with gold was often made. When the first gold ETFs arrived in 2004, it took a few years before the effect on the gold market became fully visible.
The launches were among the most successful in ETF history, and BlackRock's fund quickly became the largest. Large US managers must report their holdings every quarter, and those reports have shown that pension funds, sovereign wealth funds and private banks have come in alongside the hedge funds.
Later came ETFs for ether and several other cryptocurrencies. The rules for how units are created and redeemed have also become more flexible. The US crypto market thus got the same kind of exchange-traded products that Europe had had since 2015.