© Reuters. FILE PHOTO: Physical representations of the bitcoin cryptocurrency are seen in this illustration taken October 24, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Manya Saini, Niket Nishant and Hannah Lang

(Reuters) – Several exchange-traded funds (ETFs) tied to the spot price of bitcoin began trading in the U.S. on Thursday in a landmark moment for the cryptocurrency industry that is set to test the broader acceptance of digital assets as an investment.

The green light from the U.S. Securities and Exchange Commission finally came late on Wednesday, following a decade-long tussle with the crypto industry.

Eleven spot bitcoin ETFs, including BlackRock (NYSE:)’s iShares Trust, Grayscale Bitcoin Trust, Valkyrie Bitcoin Fund and ARK 21Shares Bitcoin ETF, among others, began trading Thursday morning, kicking off a fierce competition for market share.

“The approval has the potential to simplify and secure bitcoin investments for a broader investor base, which may reshape the dynamics of cryptocurrency investments,” said Rajeev Bamra, senior vice-president of digital finance at Moody’s (NYSE:) Investors Service.

The ETF launches lifted the price of bitcoin up to its highest level since Dec. 2021. It was last up 0.16% at $46,021, while the price of ether, the second-largest cryptocurrency, was up 2.42%.

RACE FOR MARKET SHARE

The regulatory nod is expected to start an intense competition for market share among the issuers, some of whom lowered the fees for their products well below the U.S. ETF industry’s standard even before Thursday’s launch.

Fees on the new bitcoin ETFs range from 0.2% to 1.5%, with many firms offering to waive fees entirely for a certain period of time. For short-term speculators looking to buy in and out of the products, liquidity could be a more important factor.

Grayscale – which was approved to convert its existing bitcoin trust into an ETF – on Thursday was touting its product as the world’s largest bitcoin ETF, with more than $28 billion in assets under management.

Analysts at Bernstein estimated that bitcoin ETF flows will build up gradually to cross $10 billion in 2024 in its race to $80 billion by the end of next year. Other analysts have said inflows could be $55 billion over five years.

As the ETFs began trading Thursday, market participants were closely watching bid-ask spreads: the difference between the price for a trader to buy into and ETF and the price it can be sold. ETFs with narrower spreads are typically viewed as more desirable.

“On any ETF, there’s a number of things that are going to factor into what the spread will be: the amount of trading volume certainly has a large impact, and then other elements… on the plumbing side, the number of participants that are involved in the product,” said Jason Stoneberg, director of product strategy at Invesco, whose ETF with Galaxy Digital debuted on Thursday.

“All of these things are critically important to driving the spreads to a good spot.”

Some analysts cautioned that the euphoria around the approval might be premature. The broader investment community still views cryptocurrencies as risky, with scandals such as the implosion of crypto exchange FTX in 2022 adding to investors’ wariness.

“One must be cautious not to conflate price gains with broader predictions of cryptocurrency overtaking traditional finance,” Deutsche Bank analysts said in a note, adding that volatility in bitcoin prices was likely to persist.

Speaking at a webinar on Thursday, Sharmin Mossavar-Rahmani, head of the Investment Strategy Group and chief investment officer of Wealth Management at Goldman Sachs, said cryptocurrencies had no place in an investment portfolio.

“When you think about it, where is there any value to something like bitcoin?,” she said. “We don’t think it is an asset class to invest in.”

The SEC had earlier rejected all spot bitcoin ETFs on investor protection concerns. SEC Chair Gary Gensler said in a statement Wednesday that the approvals were not an endorsement of bitcoin, calling it a “speculative, volatile asset” also used to fund crime.

CRYPTO STOCKS GAIN

Cryptocurrency-related stocks initially climbed higher on Thursday, but were last lower, with bitcoin miners Riot Platforms (NASDAQ:) and Marathon Digital (NASDAQ:) both dropping more than 12%.

Bitcoin investor Microstrategy (NASDAQ:) fell 4.2% and crypto exchange Coinbase (NASDAQ:) 5.4%. The ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, lost 0.4%.

Shares of retail trader-focused brokerage Robinhood (NASDAQ:) fell 3.1%.

Also on Thursday, Circle Internet Financial, the company behind stablecoin USDC, said it had confidentially filed for a U.S. initial public offering. Circle controls the issuance and governance of USDC, a cryptocurrency pegged to the U.S. dollar.

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