Christoffer Fentz is the first Danish guest blogger KauPr. In this blog post, he analyzes the decision of the US Financial Supervisory Authority and what it should mean for Danish banking and finance. After years of tug-of-war between the U.S. Securities and Exchange Commission and the mutual funds that have had filings in the regulatory apparatus, 11 spot Bitcoin exchange-traded funds (ETFs) are up last week been approved to be traded on the US stock exchanges.

The stock exchange regulator approved the ETFs by a vote of 3-2 (For: Gary Gensler, Hester Peirce and Mark Uyeda, and against: Caroline Crenshaw and Jaime Lizárraga).

On January 9, a false posting appeared on the US stock exchange regulator's X account that the spot Bitcoin ETFs had now been approved. Crypto enthusiasts on social media got it going, celebrating that victory was now finally in the house. However, the account was hacked. It turned out that the oversight did not have two-factor authentication (2FA) turned on, according to X's security department (which is very ironic, since back in October the stock exchange regulator made a post on the same social media with the very recommendation to have 2FA turned on). The FBI and the U.S. government are currently investigating the case for possible market manipulation.

By the evening of the following day, on the final deadline of January 10, approval then became a reality. The 11 applications from the asset managers VanEck, Bitwise, Fidelity, Franklin, Valkyrie, Hashdex, Ark Invest, Grayscale, BlackRock, WisdomTree and Invesco Galaxy have been subjected to many minor changes and numerous meetings with the stock exchange regulator over a long period of time before they were given the green light. The 11 investment firms have a combined capital under management of approximately DKK 104 trillion.

Long battle

The battle for an approval for a spot bitcoin ETF in the US dates all the way back to 2013, when Winklevoss Capital Management, led by twins Cameron and Tyler Winklevoss, submitted the very first application to the exchange regulator. The twins became known when they sued Mark Zuckerberg for allegedly stealing their idea for Facebook (immortalized in the David Fincher film 'The Social Network'). Their application in 2017 (as well as 2018 with an updated application) was rejected by the stock exchange regulator on the grounds that the Bitcoin market had not yet matured enough.

Investment manager Grayscale, which has just had its application approved, also withdrew their first attempt to convert their bitcoin fund into an ETF due to a lack of regulation in the field. However, they submitted another application in 2022, which was rejected by the exchange regulator (along with a handful of other ETF applicants).

Subsequently, Grayscale sued the stock exchange regulator and won the case in October 2023, thus having their application taken up for reconsideration. Grayscale won the case on the argument that two years prior the exchange regulator had approved the issuance and trading of futures bitcoin ETFs, which are a more uncertain form of investment since the issuer is not required to own the underlying asset that investors speculate on.

Dollar rate

Companies, on the other hand, must with the now approved spot bitcoin ETFs when they are traded. The case is now remembered as a breakthrough in the fight for the approval of the Bitcoin ETFs against a stubborn exchange oversight, which under Chairman Gary Gensler has faced massive criticism in its confusing treatment of regulation with crypto assets and lack of cooperation with the crypto industry.

Why it has taken the US so many years to approve a relatively mainstream investment product, similar spot bitcoin index funds can be traded in mixed other Canada, the EU, Switzerland and Australia, can only be speculated. One possibility could be the authorities' belief that the spot Bitcoin ETFs could be instrumental in weakening dollar sovereignty in the world.

Shouldn't the advice to Danish banks, investment funds and pension schemes in 2024 be at least to start taking Bitcoin seriously as an asset for possible allocation and offering to customers? For there is no doubt that bitcoin has now come to stay in the global investment portfolio.

Kaupr's blog column is open for submissions, analysis and debate in Norwegian, Danish or Swedish. Send your article or idea to morten@kaupr.io.

‍