While this news service doesn't cover the daily dramas of cryptocurrencies, we do monitor the ways that wealth managers' clients are affected by the development of this market. Expectations that the US SEC is about to give a green light to spot ETFs that are linked to bitcoin is keeping the market lively.

Cryptocurrency skeptics were burned in 2023 as the price of bitcoin surged; it is now up by over 160 per cent in the 12 months to today ($46,586). The price has been as high as $47,000 before easing back slightly.

And expected rule changes in the US – paving the way for exchange-traded funds linked to bitcoin – have fueled some of the fire.

Already, investment managers such as BlackRock, VanEck, Bitwise, and others, have unveiled the fees they plan to charge for their proposed spot bitcoin exchange-traded funds (source: Reuters, others).

The firms reportedly said in filings with the Securities and Exchange Commission that they expect to significantly undercut the average market rate for US ETFs as the battle for market share heats up ahead of an SEC approval deadline tomorrow.

The move comes as regulators around the world wrestle with how to handle bitcoin and digital assets more broadly. In Switzerland, to give one example, there are concerns about how bank regulations could affect one of the more vigorous jurisdictions in the space. Regulators are trying to juggle encouraging innovation and investment into new tech with concerns that cryptocurrencies can cause instability and be a conduit for illicit money. SEC chair Gary Gensler has warned several times about the perils of investing in cryptos. For example, In a January 8 post on social media platform X (formerly Twitter), he referred to the risks of the market, citing regulatory non-compliance, volatility, and potentially fraudulent activities as reasons for concern.

That said, the market has been supported by expectations that US interest rates may have peaked, lingering concerns about inflation, and the fact that bitcoin is showing a base of resilience even after market reverses. (Originally, bitcoin was hailed as an alternative to central bank fiat currencies and it capitalized on fears that massive quantitative easing post-2008 would cause high inflation. However, it has also been highly volatile, blunting – in the eyes of some – its claim to be a serious monetary alternative.)

The SEC’s expected move has been a recent positive force, Matteo Greco, research analyst at digital asset and fintech investment business Fineqia International, said in a note.

“The market's tumultuous nature is predominantly attributed to the imminent SEC decision on the approval or rejection of BTC Spot ETFs,” Greco said. 

Paradoxically, moves by authorities to crack down on poorly managed or dishonest firms (such as FTX) may also be encouraging more “mainstream” investors to keep faith in the sector. This news service has written about how wealth managers, banks and other institutions serving HNW individuals have gotten involved in cryptos.

The SEC has previously rejected all spot bitcoin ETFs, citing investor protection concerns, reports noted.

Handy facts
-- A “spot ETF” invests in bitcoin at its spot price, meaning that the fund holds bitcoin and directly tracks the price of the digital asset.
-- Exchange-traded funds typically track indices of equities, bonds, commodities, real estate, and other asset classes. 
-- The maximum number of bitcoins is still 21 million, but it is now estimated that the last bitcoin will be mined in 2040 (source: Coinmama); the block reward for mining bitcoins is halved every 210,000 blocks, which happens roughly every four years.
-- “Mining” bitcoin consumes a lot of computer power. And one bitcoin transaction can spend up to 1,200 kWh of energy.
-- Banks/fintechs in the US, or operating globally, that are friendly to cryptos include: Revolut; Wirex; Monzo; Ally Bank; Quontic; and JP Morgan (source: Koinly).