11 January 2024

Explainer: What the SEC’s approval of Bitcoin EFTs means for GRC

The SEC made history this week, overturning years of rejections to finally approve the first cryptocurrency exchange-traded funds (ETFs) tracking bitcoin prices. The watershed regulatory move carries significant implications across the crypto industry and for the governance, risk, and compliance market as a whole.

What has the SEC approved?

After “a decade in the making,” the SEC gave the green light to 11 bitcoin ETFs on Wednesday from major managers like BlackRock and Ark Investments. SEC Chair Gary Gensler cited changing legal circumstances for the reversal, while reiterating crypto skepticism. He said ETFs must still “provide full, fair and truthful disclosure” and trade on regulated exchanges with fraud/manipulation rules.

What is the impact on crypto exchanges?

The ETFs represent a major win for Coinbase and other crypto trading platforms, lending new mainstream legitimacy. Analysts forecast massive inflows, predicting the easily-accessible ETFs could drive $50-100 billion to bitcoin markets this year alone as new investors enter. However, the ETFs also undermine exchange uniqueness, with some products utilizing CME bitcoin futures rather than spot exposure.

What effect will this have on the price of Bitcoin?

Unsurprisingly, bitcoin prices surged on ETF rumors, rising 70% since October to top $46,000. Some analysts see approval sparking a climb to $100,000. Others expect more stable gains as the ETFs reduce volatility by expanding bitcoin’s investor base beyond speculators into retirement accounts.

What’s the industry’s response?

Despite lingering criticisms, crypto leaders mostly celebrated the regulatory turning point. The CEO of crypto giant Grayscale, which fought for ETF approval in court, told Reuters the products will “democratize access.” Major financial players like Fidelity also welcomed the expected asset growth, signaling shifting institutional convictions.

What should GRC professionals be thinking about?

For governance/risk/compliance teams, the bitcoin ETF move may preview expanded crypto oversight. Regulators continue targeting exchange practices, meaning GRC systems require crypto fluency. And as models like DeFi protocols proliferate, compliance spans beyond coins themselves.

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