Currently Relevant: Edition 17

Welcome to Currently Relevant, THE RELEVANCE HOUSE’s regular roundup curating the best of news, views, and stories from the blockchain, crypto, and Web3 space.  

This week, all eyes have been on the Securities and Exchange Commission (SEC), as financial industry titans race to launch spot Bitcoin exchange traded funds (ETF) for the first time. And late on Wednesday, it was finally confirmed: the SEC was approving 11 ETF applications that would begin trading on Thursday. Buzz around the approval had driven Bitcoin to a 12-month high of $47,500 this week, while prospective ETF providers jostled for position by competing on fees. 

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BTC soars amid spot ETF speculation

The ETFs will greatly expand the accessibility of Bitcoin, enabling virtually any investor or retail customer to purchase Bitcoin through standard brokerage apps. The newly approved funds include offerings by major financial and digital asset firms like BlackRock, VanEck, Invesco Galaxy, and Grayscale.

While the SEC first approved Bitcoin-based ETFs back in 2021, these products were based on the price of futures contracts, which can vary from the spot price of BTC. In contrast, spot ETFs are backed by a direct investment in BTC as opposed to Bitcoin derivatives.

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Fierce competition on fees

As the approval deadline loomed, the competition on fees ramped up as a number of prospective applicants including BlackRock, VanEck, Ark Investments/21Shares and Bitwise promised to charge significantly less than the average market rate for US ETFs. 

Source: Reuters, Bloomberg, Coindesk

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The big outlier here was Grayscale, which proposed a fee of 1.5%, markedly above other competitors in the field. While some analysts predicted that this could lead to outflows, Grayscale seems to be betting that its size and track record in the field will sway investors. In an interview with Bloomberg, Grayscale’s chief legal officer argued that “We’re the only ones with an actual fund today with AUM, trading volume and investors”.  

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Courtroom victory over the SEC

The road to spot ETF approval was paved by a court case last year. It all started when Grayscale sought approval to convert its Bitcoin-based fund, GBTC, to become a spot ETF. The application was rejected by the SEC, which argued that spot markets are too difficult to surveil for evidence of fraud and manipulation. However, a federal appeals court overturned the SEC decision last October, ruling that the body had acted in a manner which was “arbitrary and capricious” given that it had approved similar products in the past. When the SEC indicated that it would not appeal the decision, the hopes of crypto advocates were stoked that an ETF approval could be imminent. 

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The hack before the storm

With markets poised for confirmation on Tuesday, many were confused by an erroneous post on the SEC’s official X account prematurely stating that it had approved the ETFs. The regulatory body later stated that its account had been compromised and that the post was published without authorization.   

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Macro indicators look positive for 2024 

Despite the cold snap that continues to grip Europe, crypto markets have been warming up. After a tumultuous year for digital assets, recent months have brought investors some much appreciated gains. Bitcoin values have surged, reaching a 12-month high of $47,500 in January. In addition to the spot ETF approvals, analysts are also citing anticipation of the upcoming Bitcoin halving in April and positive news on interest rates as possible causes.  

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Following successive interest rate hikes in 2022 and 2023, the US Federal Reserve now seems confident that it has done enough to curb inflation and looks poised to cut rates three times in 2024. The change in the US macroeconomic outlook comes as investors anticipate the upcoming Bitcoin halving scheduled for April 23, which will reduce the reward for mining from 6.25 BTC to 3.125 BTC per block. This has the effect of reducing supply, thereby creating additional scarcity. Previous halving events have typically been correlated with Bitcoin price increases. Other major cryptocurrencies like Ether, and ADA have posted gains over the last half year. 

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Even BNB, which was down over 6% on the back of Binance’s legal struggles in November shows signs of recovery to pre-crisis levels, posting a 17% increase over the last 6 months.

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VISA integrating web3 loyalty program

Payment technology provider Visa has announced details of new Web3 loyalty features that it is rolling out to clients. The new solution, which offers an interesting alternative to traditional points-based programs, will allow brands to reward customers for purchases, social media activity, taking part in augmented reality “treasure hunts”, and responding to polls. Rewards will come in the form of digital collectibles and tokens which can be redeemed for benefits in both physical and online settings.