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On Tuesday at 4:11 p.m., the Securities and Exchange Commission's official X Twitter account posted news that a new Bitcoin-tracking investment product had received regulatory approval. This development appeared to mark a significant triumph for the cryptocurrency industry.
However, a subsequent twist occurred merely 15 minutes later at 4:26 p.m. when SEC Chairman Gary Gensler revealed that the account had been subjected to unauthorized access, resulting in the dissemination of a false tweet. This security breach was further confirmed by an S.E.C. representative through an email communication.
The compromised @SECgov X account had tweeted: "Today the SEC grants approval for #Bitcoin ETFs for listing on all registered national securities exchanges. The approved Bitcoin ETFs will be subject to ongoing surveillance and compliance measures to ensure continued investor protection." Accompanying this tweet was a graphic, falsely attributed to Gensler.
Additionally, the account briefly published another tweet, simply stating "$BTC," which was promptly removed.
This security incident added yet another layer to the complex narrative of the cryptocurrency industry's prolonged quest for a Bitcoin-linked exchange traded fund (ETF). Since autumn, the crypto community has been eagerly anticipating the Securities and Exchange Commission's (S.E.C.) decision, due by January 10, on whether to greenlight a Bitcoin ETF. This anticipation has partly fueled a significant 60 percent surge in Bitcoin's value in recent times, as optimism about potential approval grew.
The market experienced extreme volatility during this period, as CoinGlass data showed that over $50 million in leveraged derivatives positions were liquidated within an hour.
The approval of such a financial product has been a long-held aspiration among crypto enthusiasts. They believe that a legitimate Bitcoin ETF would channel billions of dollars into the sector, attracting wealth managers who have previously been cautious about investing client funds in cryptocurrencies.
Historically the S.E.C. had been skeptical about approving such a product, citing concerns over potential market manipulation within the crypto space. However, the scenario shifted in August when the SEC lost a legal battle against Grayscale, which aspired to launch a Bitcoin ETF. This legal defeat appeared to clear the path for the eventual approval of the ETF.
This judicial victory emerged as a beacon of optimism during a particularly challenging phase for the cryptocurrency sector. Since the middle of 2022, the industry has faced a steep decline in cryptocurrency values, with some prominent companies declaring bankruptcy. This downturn has also led to legal actions, with Gary Gensler, head of the Securities and Exchange Commission (S.E.C.), spearheading initiatives against major entities in the crypto space, including lawsuits targeting leading firms like Coinbase and its global competitor, Binance.
Consequently, when the S.E.C.'s official X account on social media released a post late Tuesday afternoon, the cryptocurrency industry was on the cusp of celebration.This announcement momentarily caused the price of Bitcoin to soar, reaching nearly $48,000. However, following the S.E.C.'s disclosure of the account hack, the value of Bitcoin experienced a decline, stabilizing closer to $45,000.
What is a Bitcoin Futures ETF?
A Bitcoin Futures Exchange-Traded Fund (ETF) is a type of investment fund that issues publicly traded securities, providing investors with exposure to the price movements of Bitcoin. Essentially, an investment company sets up a subsidiary that functions as a commodity pool. This pool then engages in trading Bitcoin futures contracts, typically aiming to mirror the spot price of Bitcoin. However, there are associated costs, such as "roll premiums" and management fees. Additionally, since futures contracts don't exactly track spot prices, and the returns from a Bitcoin Futures ETF might not align precisely with the spot market prices of Bitcoin.
Why the Need for a Bitcoin ETF?
For the average retail investor, Bitcoin and cryptocurrencies can appear daunting and risky. This perception is partly due to the relatively unregulated nature of cryptocurrencies and the complexities involved in owning Bitcoin. To hold Bitcoin, one needs to manage a Bitcoin wallet or use a cryptocurrency exchange. This may be unfamiliar territory to some, but certain exchanges like Phemex offer newcomers educational resources to get them up to speed on the basics of crypto.
In the case of self-custody, the responsibility for security when holding Bitcoin falls entirely on the individual. This means ensuring the safekeeping of private keys, potentially through purchasing a hardware wallet or finding secure methods to store these keys. Additionally, investors need to understand how to report any capital gains from Bitcoin transactions for tax purposes.
A Bitcoin ETF offers a more accessible alternative. Investors don’t need to worry about the intricacies of private keys, storage, or the overarching security concerns. By investing in a Bitcoin ETF, they own shares in the fund much like they would with stocks, enabling them to gain exposure to the cryptocurrency market without the complexities of directly purchasing and holding cryptocurrencies.
A Brief History of Bitcoin ETF Progress
- July 2013: The journey begins with the Winklevoss Bitcoin Trust filing the inaugural Bitcoin ETF proposal.
- June 2018: The Securities and Exchange Commission (SEC) rejects a second proposal for a Bitcoin ETF from the Winklevoss twins.
- October 2019: The SEC turns down Bitwise's proposal for a Bitcoin ETF.
- February 2020: Wilshire Phoenix's Bitcoin ETF project is the latest to face rejection from the SEC.
- September 2020: A milestone is achieved with the listing of the world’s first Bitcoin ETF on the Bermuda Stock Exchange.
- December 2020: VanEck files a new proposal for a Bitcoin ETF, having previously withdrawn its earlier proposals before any formal rejections.
- February 2021: Canada welcomes its first Bitcoin ETF, the Purpose Bitcoin ETF (BTCC), followed closely by two more approvals within the same month: the Evolve Bitcoin ETF (EBIT) and the CI Galaxy Bitcoin ETF (BTCX).
- October 2021: The U.S. sees the debut of its first Bitcoin-linked ETF, the ProShares Bitcoin Strategy ETF (BITO), which tracks Bitcoin's price through related assets rather than holding Bitcoin directly.
- June 2023: The SEC approves the 2x Bitcoin Strategy ETF (BITX) from Volatility Shares, marking the first leveraged Bitcoin futures ETF.
- August 2023: Europe enters the scene with London-based Jacobi Asset Management launching its first Bitcoin ETF.
- August 2023: A significant legal development occurs as a U.S. judge mandates the SEC to reconsider its denial of Grayscale’s application to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF.
- October 2023: The U.S. Court of Appeals orders the SEC to review Grayscale's application, following the SEC’s failure to appeal.
- December 2023: SEC Chair Gary Gensler announces a renewed examination of spot Bitcoin ETF applications, with the regulator reviewing "between eight and a dozen filings."
