Spot bitcoin ETFs (2024)

Wonder

1. Why did the SEC reject a bitcoin fund application for ten years only to approve a dozen in one month?
2. What is the difference between holding a share of a fund and holding the private keys to the underlying asset?
3. How does routing billions of dollars through a single custodian change the security model of a decentralized network?

Explore

1. In July 2013, the Winklevoss twins filed for a spot bitcoin trust. The SEC eventually rejected it in 2017, citing the risk of fraud and manipulation, unregulated underlying markets, and the lack of a surveillance-sharing agreement with a regulated market of significant size. It denied or delayed many similar applications over the following years on the same grounds.
2. Grayscale’s Bitcoin Trust (GBTC), launched in 2013, was a trust with no redemption program, so its shares could drift far from the value of the bitcoin it held: it traded at large premiums for years, then from 2021 at deep discounts as the premium trade unwound and competing products appeared. In 2022, Grayscale sued the SEC after it refused to let GBTC convert into an ETF. The D.C. Circuit Court of Appeals ruled in August 2023 that the SEC’s denial was ‘arbitrary and capricious,’ effectively clearing the path for competitors.
3. On January 10, 2024, the SEC approved spot bitcoin ETF applications from roughly a dozen issuers, including BlackRock, Fidelity, and Grayscale. Trading began on January 11. Within weeks, these funds became the fastest-growing exchange-traded products in history. SEC Chair Gary Gensler said the approval followed the court ruling and was not an endorsement of bitcoin.
4. The mechanism is straightforward: investors buy fund shares through standard brokerage platforms. The fund uses proceeds to purchase actual bitcoin, which a designated custodian holds in cold storage wallets. Investors own a claim on the fund’s assets, not the coins themselves. This structure allows for easy integration into retirement accounts and portfolio rebalancing tools, but it strips away self-custody. If the custodian is hacked or insolvent, investors rely on legal recourse rather than cryptographic control.
5. Custody concentration has become a defining feature of this era. A handful of specialized firms now hold well over a million bitcoin for thousands of retail and institutional clients. This centralizes risk in ways that contrast with the network’s decentralized design. While it improves liquidity and accessibility, it creates single points of failure. The security model shifts from individual key management to corporate compliance audits and insurance policies.
6. Spot ether ETFs followed in July 2024, replicating this structure for Ethereum. The rapid adoption by major banks and asset managers has integrated bitcoin into the daily flow of global finance. For many new entrants, an ETF share is their first interaction with the asset. This decouples ‘ownership’ from active wallet usage; exposure grows without a proportional increase in individual addresses holding keys directly.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• SEC, Order Granting Listing and Registration Applications for Spot Bitcoin Trusts (Jan 10, 2024)
• Grayscale Investments v. SEC, No. 22-1142 (D.C. Cir. Aug. 29, 2023)
• BlackRock, iShares Bitcoin Trust Prospectus
• Winklevoss Bitcoin Trust, Form S-1 (July 2013)